Preamble

The House met at half-past Two o'clock

PRAYERS

[Mr. SPEAKER in the Chair]

PRIVATE BUSINESS

BUCKINGHAMSHIRE COUNTY COUNCIL BILL [Lords]

As amended, considered: to be read the Third time.

ARUNDEL ESTATE BILL [Lords] (By Order)

Second Reading deferred till Monday next.

LONDON COUNTY COUNCIL (GENERAL POWERS) BILL [Lords] (By Order)

Second Reading deferred till Thursday next.

LIVERPOOL CORPORATION BILL [Lords] (By Order)

Second Reading deferred till Wednesday next, at Seven o'clock.

PETITION

Nuclear Weapons

Mr. H. Butler: With your permission, Mr. Speaker, and that of the House, I desire to present a Petition from the citizens of the Borough of Hackney, which has been signed by approximately 9,600 residents, including the civic dignitaries, the Worshipful Mayor and Mayoress, leading people of religious thought, trade unionists, housewives and people who are concerned.
And the Petition
Sheweth that the future of all the peoples of the world including our own British people is endangered by nuclear weapons and that every fresh explosion of a bomb increases the danger both to people now alive and to those yet unborn.
Wherefore your Petitioners pray that the honourable the House of Commons of the United Kingdom of Great Britain and Northern Ireland should immediately propose the abolition of nuclear bomb tests through international agreement and any further tests

should be deferred until an answer has been received from interested Governments.
And your Petitioners, as in duty bound, will ever pray.
In view of the fact that I have read the Petition, I do not propose to ask the learned Clerk to read it again.

To lie upon the Table.

Oral Answers to Questions — MALAYA

Constitution

Mr. Peyton: asked the Secretary of State for the Colonies when he intends to publish his proposals for the new constitution of Malaya.

The Secretary of State for the Colonies (Mr. Alan Lennox-Boyd): It is hoped to publish a White Paper on the agreement reached between Her Majesty's Government, Their Highnesses the Rulers and the Government of the Federation of Malaya early next week.

Mr. Peyton: Whilst I am very glad to hear that my right hon. Friend has such definite news on this subject, may I ask him if he is aware of the widespread interest with which the proposals are awaited and also of the certain amount of anxiety that there should be as little as possible of racial discrimination which might otherwise prejudice the future success of these proposals?

Mr. Lennox-Boyd: I am aware of both those considerations.

Mr. Teeling: asked the Secretary of State for the Colonies whether he will place the memoranda submitted by Her Majesty's Government to the Reid Constitutional Commission for Malaya in the Library.

Mr. Lennox-Boyd: No, Sir. I do not propose to do this.

Mr. Teeling: Does my right hon. Friend realise that there is still a certain amount of anxiety in this country, in the Dominions and in the Commonwealth as a whole about the way in which the new constitution is being rather rushed? If he cannot put the whole facts in the Library, cannot he place there some kind


of memorandum about them in order to ensure that people realise what is our attitude and how far we are going?

Mr. Lennox-Boyd: The proposals which are now being considered are entirely acceptable to Her Majesty's Government, and when the White Paper is published shortly our point of view will be clearly shown.

Sir A. V. Harvey: asked the Secretary of State for the Colonies whether he will ensure that in the forthcoming White Paper relating to the new Malayan Constitution it will be clearly indicated whether or not the special privileges to be given to the Malay section of the population are to be granted to immigrant Indonesians domiciled in Malaya on Independence Day; and whether or not they will be denied to persons born in Malaya or Chinese families which have been continuously domiciled there for over 200 years.

Mr. Lennox-Boyd: Safeguards for the rights of all races in the Federation will be provided in the new constitution. For an answer to his special points, I would ask my hon. and gallant Friend to await the publication of the White Paper.

Population (Statistics)

Mr. Awbery: asked the Secretary of State for the Colonies if he will publish a table showing the Malay, Indian and Chinese percentage of the population of each of the States and Settlements of the Malayan Federation in the first decade of this century and at the last census, and also a table showing the percentages of the electorate enjoyed by these three races in each State and Settlement in the 1955 election to the States and Settlements Councils; and what percentage of members of each State and Settlement Council, respectively, are at present elected and what percentage are nominated.

Mr. Lennox-Boyd: I have asked the High Commissioner for the Federation of Malaya to provide this information and will send it to the hon. Member.

Mr. Awbery: I am obliged to the Minister for acceding to my request to ascertain these figures. May I assure him that I will read them with interest and will come back with further questions?

Mr. Lennox-Boyd: I do not doubt it.

Oral Answers to Questions — HONG KONG

Cotton Cloth (Exports to United Kingdom)

Mr. Allaun: asked the Secretary of State for the Colonies whether, following the recent refusal of Hong Kong to limit cotton cloth exports to Great Britain, he will now consider introducing a minimum wage in Hong Kong textile mills.

The Under-Secretary of State for the Colonies (Mr. John Profumo): No, Sir. As my right hon. Friend informed the hon. Member on 24th October, 1956, wages and working conditions in this industry compare favourably with those in other industries, and it is not proposed to introduce a legal minimum wage.

Mr. Allaun: But is the Minister aware that Lancashire is increasingly alarmed by the growth of cotton imports, made by underpaid Hong Kong labour, which has increased from 5 million square yards six years ago to 55 million square yards last year? Since the wages of textile workers in Hong Kong are so far below those of the workers in Lancashire, would it not be in the interest of both to introduce a legal minimum wage?

Mr. Profumo: No, Sir, and I do not agree that they are underpaid. I think it would be improper to enforce a higher minimum wage simply to protect the United Kingdom cotton industry.

Franchise

Mr. Rankin: asked the Secretary of State for the Colonies when the Government of Hong Kong proposes to introduce an extension of the franchise.

Mr. Lennox-Boyd: No proposal for an extension is being considered at present.

Mr. Rankin: Would not the right hon. Gentleman ask the Hong Kong Administration to think about this matter? Is he aware that the great mass of the pre-war population in Hong Kong has not the right to vote? Does he not think that it is very difficult to attack dictatorships in other parts of the world when we ourselves are maintaining a dictatorship, however benevolent, in Hong Kong?

Mr. Lennox-Boyd: Nobody in Hong Kong thinks for a moment that he is


living under a dictatorship. Many hundreds of thousands have left a dictatorship to go to live in Hong Kong. There is no significant public demand for this change, and I suggest that if the hon. Member went to live there, even he himself would quickly absorb the prevailing atmosphere.

Oral Answers to Questions — CYPRUS

Police and Security Forces (Allegations)

Mr. K. Robinson: asked the Secretary of State for the Colonies if he will now state what form of inquiry will be instituted by the Governor of Cyprus in order to clear the good name of the Cyprus Police Force and the security forces.

Mr. Grimond: asked the Secretary of State for the Colonies if he will make a statement on the refusal of the Governor to hold an inquiry into police methods in Cyprus.

Miss Lee: asked the Secretary of State for the Colonies what steps he is taking to investigate allegations of ill treatment while in Cyprus made by Cypriot prisoners now in Wormwood Scrubs.

Mr. Brockway: asked the Secretary of State for the Colonies if he will establish an independent inquiry into allegations of ill-treatment by members of the Special Branch in Cyprus, copies of which have been sent to him through the Home Office, made by Cypriot prisoners in Wormwood Scrubs prison.

Miss Lee: asked the Secretary of State for the Colonies if he will set up an independent committee to investigate conditions in British prisons in Cyprus.

Mr. Edelman: asked the Secretary of State for the Colonies whether he will move to set up a Select Committee in order to examine and report on the treatment of political prisoners in Cyprus by British officials.

Mr. Lennox-Boyd: The campaign of vilification against the police and security forces in Cyprus culminated in a statement by Archbishop Makarios last week. Complaints made to the hon. Member for Cannock (Miss Lee) and the hon.

Member for Eton and Slough (Mr. Brockway) by Cypriot prisoners in Wormwood Scrubs are clearly, by their timing, part of this campaign. Hon. Members will, I am sure, not be misled by the motives of this campaign.
Archbishop Makarios, who, despite his association with terrorism and murder, has been given every encouragement to put forward constructive ideas on the future of the island, has failed to make any constructive move during his sojourn in Athens. Instead, he devotes himself to making fantastic charges against our fellow-citizens in Cyprus who are carrying out a difficult task with the courage and restraint which are associated with the British police and armed forces everywhere. I know that most hon. Members on both sides of the House who represent these men and men like them in Parliament know that they are not the sort of people likely to commit the acts alleged by Archbishop Makarios in this campaign.
Nevertheless, the Governor is investigating the allegations of ill-treatment recently made wherever they are framed in sufficiently specific terms to make investigation possible, and as soon as these investigations are completed I will place detailed comments in the Library so that the House can form its own judgment on them. I am, however, satisfied, that these wild charges do not justify a special inquiry.

Mr. Robinson: Is the right hon. Gentleman aware that no investigation by the Governor or the Cyprus Government can possibly allay the very real concern that is felt by numbers of people about this? Is he further aware that not only Greek Cypriots but responsible people in Cyprus have expressed great anxiety about some of the incidents which had been reported, and since he said a week or two ago that the Governor was anxious to clear the good name of the security forces, will he not realise that the only way in which this can be done is by an independent inquiry?

Mr. Lennox-Boyd: I think that some hon. Members do not perhaps altogether understand the conditions at the moment in Cyprus under which witnesses who wanted to give evidence against statements made under E.O.K.A. pressure would be placed if they were asked to


make those statements to some other inquiry. I am absolutely satisfied that one of the main reasons for this campaign of denigration is to enable E.O.K.A. to discover and to eliminate weaknesses in its own organisation and methods of operation which have enabled the security forces to make such inroads upon it. One of the so-called victims of these charges, in effect, said a week or so ago that there really was no charge to make. He said, "The Church is very powerful here." Does the hon. Gentleman really think that I, or any other responsible person, should set in motion machinery under which that and similar statements would be published in a way which would identify the individuals?

Miss Lee: Is the Minister not aware that it would be quite improper for Cypriot prisoners who are making allegations of maltreatment to be judge and jury in their own case? Is he also aware that the logic which applies to these Cypriot prisoners applies to himself and to the Governor of Cyprus? Is he further aware that, if the situation remains as it now is, in the eyes of the world the British Government have pleaded guilty? [HON. MEMBERS: "Nonsense.] Therefore I ask, if we are to justify the good name of our British soldiers abroad, of which we are all proud, that in their interests as well as in the interest of the honour of the Government, it is absolutely essential that an independent inquiry should be set up?

Mr. Lennox-Boyd: I cannot accept the hon. Lady's conclusions. Her own visit with the hon. Member for 'Eton and Slough (Mr. Brockway) to Wormwood Scrubs, which the Home Secretary was very ready to facilitate, brought her into contact with a number of men who made charges. These men in Wormwood Scrubs were all examined in the routine manner by the prison medical officers on their arrival last year and at the beginning of this year. I have seen and read carefully every one of the reports.
No marks, bruises, or anything else suggesting injury or ill-treatment were noticed on any of these men, and no complaints of such ill-treatment were made at the time of their entry into Wormwood Scrubs. Of the men that the hon. Lady saw, four complained when they were in Cyprus of rough treatment in Cyprus,

and those four cases will be dealt with in a statement that I will lay in the Library. I would ask the House to note—to put it mildly—the curious coincidence in timing between the suggestion made that these two hon. Members should visit Wormwood Scrubs and the statement made by Archbishop Makarios in Athens.

Several Hon. Members: rose—

Mr. Speaker: I hope this will not become a debate on these Questions. There are a number of other Questions to be dealt with. If any hon. Member wishes to give notice to raise the matter on the Adjournment, he can, of course, do so.

Mr. Callaghan: While I accept your suggestion, Mr. Speaker, in one sense, may I submit that the Colonial Secretary has made three very long statements—they are not answers to Questions—which could perhaps have been better made at the end of Questions? This is a most important topic, and I must submit that it would be quite improper not improper on your part, Mr. Speaker—but it would be unworthy if the Colonial Secretary by the vehemence of his language and the length of his replies were to get away with statements which are quite unfounded, especially in so far as they reflect on the conduct and honour of my hon. Friends.

Mr. Speaker: I think that if the hon. Member reflects he will agree that some of the supplementary questions which have been asked did cover a good deal of ground, as did the answers. I am perfectly willing to call hon. Members to ask supplementary questions on this matter. I would only ask that they be questions and not speeches.

Mr. Dudley Williams: On a point of order, Mr. Speaker. There is very strong feeling on this side of the House that the statement which has been made by my right hon. Friend completely exonerates the forces concerned with security in Cyprus. In view of that fact, would it not be fair to my hon. Friend the Member for Wokingham (Mr. Remnant)—

Mr. Speaker: I have my eye on him.

Miss Lee: Further to that point of order. In view of the urgency and the


gravity of this matter, which is now eating into the normal rights of hon. Members at Question Time, would it be in order to move the Adjournment of the House at the end of Questions so that we can give the serious discussion to this matter which it requires?

Mr. Speaker: In any case, this is the wrong time to move such a Motion; but I can tell the hon. Lady that it is not a matter which falls within Standing Order No. 9.

Mr. Brockway: Is the right hon. Gentleman aware that the hon. Lady the Member for Cannock (Miss Lee) and I saw the injuries upon nine of these prisoners, and that while many of those injuries might have taken place in ordinary fighting, some, like deep cuts around both wrists, were quite obviously due to other treatment than that? In view of these facts, will he not only investigate these cases but investigate a large number of other cases of which evidence has been given by an independent inquiry for which we have asked?

Mr. Lennox-Boyd: I am not challenging the hon. Member's belief in what he saw, but I would suggest that it would have been better and probably more valuable to the course of justice if those prisoners had themselves complained to the prison medical officer when they were received at Wormwood Scrubs. I have given an answer. I have read the medical officer's report, and I have given the answer that is based on those reports. As my right hon. Friend the Lord Privy Seal and Home Secretary has told one of the hon. Members who went to Wormwood Scrubs, the prison medical officer is carrying out a further investigation into these matters, and I think the House will hear about it with interest in due course.

Mr. Remnant: Would not my right hon. Friend agree that it is an old-established custom in this country to regard an accused person as innocent until he is proved guilty? Since accusation is not proof, should not hon. Members remain neutral until my right hon. Friend has completed his inquiry, when differences of opinion as to the value of the inquiry can be expressed, rather than take sides at this stage?

Mr. Lennox-Boyd: It is certainly a civilised practice.

Several Hon. Members: rose—

Sir P. Agnew: On a point of order. Although I am quite satisfied with my right hon. Friend's reply, I beg to give notice that I shall raise this matter on the Adjournment to point out how ill-founded these accusations are.

Mr. Edelman: On another point of order. May I ask, Mr. Speaker, whether you had not called me before the hon. Member for Worcestershire, South (Sir P. Agnew) raised his point of order and whether, therefore, I have not the possession of the House; in which case, am I not entitled to put a supplementary question?

Mr. Speaker: A point of order takes precedence of other business, because if something has been done which is out of order I am bound to listen to it before I can go on. On the main point, I remember a similar incident happening when a previous Government were in office and when the then Speaker, my predecessor, deprecated the giving of notice to raise a matter on the Adjournment by the same side of the House as was under cross-examination. I would remind the House of that, and I agree with what my predecessor said. I hope we may now pass on, as notice has been given and I am bound by it.

Mr. J. Griffiths: Further to the point of order. It is within the recollection of the House that the hon. Member for Worcestershire, South (Sir P. Agnew), who has just given the Adjournment notice, must have been aware of your desire and intention to call for supplementary questions hon. Members who had put Questions down on this subject. In view of the fact that the hon. Member must have heard you say that, was it not very discourteous of him to take the action he did?

Sir P. Agnew: I had due regard to the interests of the House before I gave notice. If you, Mr. Speaker, should express a wish that I should withdraw the notice, I will do so; but I shall not do so unless you indicate it. I think it would be right that other hon. Members should have an opportunity of putting their Questions.

Mr. Speaker: We have passed that stage now. I have no interest in the matter except to secure a fair division


of time among hon. Members who have other Questions on the Order Paper. If notice is given to raise a matter on the Adjournment, I am bound to proceed.

Mr. Griffiths: The hon. Member having given notice to raise the matter on the Adjournment, what steps can be taken if he does not proceed to seek to raise it on the Adjournment?

Mr. Speaker: That matter would require consideration. At the moment it is hypothetical.

Mr. Edelman: Is it not an illegitimate procedure and an abuse of the tolerance of the House for an hon. Member to get up and say that although he is satisfied with the Minister's reply none the less he wishes to raise the matter on the Adjournment? Is not the whole tradition of the control of the debate that a Private Member who is dissatisfied with a Minister's reply then proceeds to give notice that he will raise the matter on the Adjournment, and is not the action that has now been taken most undesirable?

Mr. Speaker: The hon. Member is quite right. That is the usual practice. Notice to raise a matter on the Adjournment usually arises because an hon. Member is dissatisfied with a reply, but it does not affect the validity of the notice whatever the reason an hon. Member gives.

Mr. Nabarro: Is it not a fact that my hon. Friend the Member for Worcestershire, South (Sir P. Agnew) and myself are very concerned about this matter? May not the purpose of an Adjournment notice be to express approbation of Ministerial conduct as well as the alternative expression of dissatisfaction? My hon. Friend gave notice that he wished to raise the matter on the Adjournment but not to express dissatisfaction surely that is not a contravention of the rules of order.

Mr. Speaker: I have ruled that the notice was effective. I merely said that it was the usual thing in this House for an hon. Member who was dissatisfied with an answer that had been given to give notice of that kind.

Mr. Rankin: Further to the point of order. In view of the fact that I desire to express extreme disapproval of the

Minister's reply, I beg to give notice that I shall raise the matter on the Adjournment.

Later—

Miss Lee: On a point of order, Mr. Speaker. May I have an answer to Question No. 18?

Mr. Speaker: I understood that that Question was answered with Question No. 3.

Miss Lee: No, Mr. Speaker. It was quite a different Question and it was not answered.

Mr. Lennox-Boyd: I expressly read out the hon. Lady's Question, which seemed to me to be part of the same story which certain hon. Members were anxious to develop. I answered it with Question No. 3 and regarded my long Answer as covering the Question by the hon. Lady.

Mr. Speaker: That is what I understood. I thought I heard the right hon. Gentleman say that.

Miss Lee: There were a great many Questions answered together, and no previous notice was given to us that they were to be answered together. This Question specifically asks for an inquiry into prison conditions and does not deal with actual cases.

Mr. Lennox-Boyd: It is within my recollection, Mr. Speaker, that at a certain moment you said that you were ready to receive certain supplementary questions from hon. Members who had Questions on the Order Paper, and the hon. Lady then rose.

Mr. Speaker: I think it was dealt with.

Mr. Callaghan: Further to that point of order. [HON. MEMBERS: "Oh."] We have had some pretty ungentlemanly conduct this afternoon. If my hon. Friend the Member for Cannock (Miss Lee) asks for the Question to be answered again when it is reached, is there anything that would prevent it being answered again?

Mr. Speaker: Yes, the fact that it has been answered already is a bar.

Mr. Callaghan: I have always understood that the tradition was that it is by the consent of the House and of the hon. Members concerned that a group of Questions is answered together. If an


hon. Member insists on an Answer being repeated, there is nothing to stop that being done if the Minister is prepared to receive further supplementary questions, which would have been asked if it were not for the intervention of the hon. Member for Worcestershire, South (Sir P. Agnew).

Mr. Speaker: The case might have been different if the hon. Lady had not asked a supplementary question—[HON. MEMBERS: "On Question 16."] Order. I specifically gave her an opportunity of supplementing her Question on the Order Paper. I have to accept, therefore, that her Question has been answered.

Mr. Callaghan: May I point out that the hon. Lady has two Questions on the Order Paper, Questions Nos. 16 and 18? She asked her supplementary questions in relation to the conditions of prisoners in Wormwood Scrubs, to which the Colonial Secretary replied, but she has had no answer at all to Question No. 18.

Mr. Speaker: I cannot help that now. The hon. Lady should have asked her question about it then.

Deep-Water Port

Mr. P. Williams: asked the Secretary of State for the Colonies if he will make a further statement on the progress being made in the provision of a deep-water port in Cyprus.

Mr. Lennox-Boyd: The consulting engineers are working on the detailed plans and specifications for the extension of Famagusta Harbour. They have indicated that tenders could be invited by the end of August.

Mr. Williams: Can my right hon. Friend give any indication of the expected cost of this development plan?

Mr. Lennox-Boyd: It is a very expensive scheme; I think it is about £3¾ million.

Mr. Callaghan: Further to that last answer and before money is spent on a project of this sort, can we have an assurance that the Government will take into account the recent visit of the Minister of Defence to this area to see whether money to this extent will be wasted by being spent there?

Mr. Lennox-Boyd: All Ministers in this Administration act in harmony and in knowledge of each other's doings.

Oral Answers to Questions — UGANDA

Price Assistance Funds (Grant)

Mr. Stonehouse: asked the Secretary of State for the Colonies what consultations the Uganda Government held with farmers' organisations before deciding to take £7,500,000 out of the Cotton and Coffee Price Assistance Funds as a grant to Government funds.

Mr. Profumo: There has been no such decision. A proposal to convert to a grant an interest-free loan of £7½ million from the Price Assistance Funds sanctioned by the Legislative Council in March was debated by the Council on 6th June, but, by consent, the Motion was withdrawn.

Co-operative Ginneries

Mr. Stonehouse: asked the Secretary of State for the Colonies how many cotton ginneries have been made available for co-operative unions in Uganda under the cotton reorganisation scheme; and how many more will be made available during the next five years.

Mr. Lennox-Boyd: Nine, Sir. I hope that five more co-operative ginneries will be established in the next five years.

Mr. Stonehouse: Would the Secretary of State give an undertaking that the transfer of these cotton ginneries will be made at a rate of compensation which will not prove an undue burden on the cooperative unions?

Mr. Lennox-Boyd: The Governor, who recently came to England and is still here, as the hon. Member knows, is very conscious of the importance of securing that the co-operative unions are required to provide one-third of the capital cost of the ginneries, the balance of capital cost being lent by the Government at the rate of 5¾ per cent. to make up the balance.

Oral Answers to Questions — TANGANYIKA

Assistant Ministers (Appointment)

Mr. Stonehouse: asked the Secretary of State for the Colonies on what basis it is proposed to appoint Assistant Ministers in Tanganyika in the interim development of the Ministerial system.

Mr. Lennox-Boyd: I am circulating in the OFFICIAL REPORT the passage in


the Governor's speech to the Tanganyika Legislative Council on 30th April, in which he announced the proposed appointment of six Assistant Ministers. As I said during the course of the debate on 4th June, the people chosen for these posts are those who, in the Governor's view, are the individuals best fitted by experience and interest to address themselves to the aspects of government concerned.

Following is extract from the Governor's speech:
At the same time, and again with the agreement of the Secretary of State and subject to the approval of this Council, I propose to appoint six Unofficial Assistant Ministers. These Assistant Ministers will be expected to relieve the Ministers of many of the executive and administrative responsibilities for the departments which will be allocated to them, the departments having been chosen because the activities affect a large section of the population. In any case it is important that Ministers, if they are to devote themselves to policy, should be free as far as may be possible from such executive and administrative work. The Assistant Ministers would, furthermore, speak for their departments in Legislative Council, and where matters affecting these departments came before Executive Council, would attend meetings of Executive Council and take part in discussions. Finally, Assistant Ministers will have the duty of travelling widely in the territory and of acquiring first-hand information, assessing public opinion and explaining Government's policies. They will also be available to serve as chairmen or members of committees, or to undertake enquiries.
In the very near future I shall be inviting certain individuals to accept appointment as Assistant Ministers; the name of those who have agreed to accept, together with the subjects assigned to them, will then be announced. It is proposed to make these selections on a non-racial basis and no special significance should be attached to any racial balance which my emerge from those selected and prepared to serve as Assistant Ministers in this interim measure in the development of a Ministerial system.

Oral Answers to Questions — SEYCHELLES

Constitution and Administration

Mr. Swingler: asked the Secretary of State for the Colonies when was the last occasion on which an independent committee investigated the constitutional and administrative system of the Seychelles; what recommendations were made; and with what results.

Mr. Profumo: I cannot trace any investigation of this kind. There was an examination of the financial position of

the Colony, carried out in 1933 by Mr. T. Reid, who was well known and respected in this House as Member for Swindon.

Mr. Swingler: That was a long time ago. Does this not show that it is time some investigation of this kind were held? Is the Under-Secretary of State aware that I now have the support of The Times in favour of such an inquiry? In view of the serious scandals that have taken place in the Seychelles year after year and revealed in the Auditor's Report, as well as an accumulation of inefficiencies and irregularities, would he not now set up an investigation?

Mr. Profumo: I find the hon. Gentleman's charges exaggerated. None the less, a Commissioner is being appointed to examine the financial and fiscal policy, and the investigation will necessarily include aspects of the administrative system.

Loans and Grants

Mr. Swingler: asked the Secretary of State for the Colonies what loans and grants have been made by the United Kingdom to the Seychelles in each of the last five years; and for what purposes.

Mr. Profumo: Since 1952, £130,031 has been granted to Seychelles under C.D. & W. schemes mainly for health, housing, agriculture, communications and education. For details, I would refer the hon. Member to the Return of Schemes made under the C.D. & W. Acts published each year as a House of Commons Paper.

Mr. Swingler: While welcoming the announcement that a Commissioner is to be appointed to investigate the administration of the Seychelles, even though it was announced in a rather haphazard way, may I ask whether we are to understand that it will be part of this Commissioner's function to investigate how this money has been spent and to ensure that in future it is spent through the proper channels and is properly accounted for?

Mr. Profumo: We had better await the result of the Commission, which will cover all the sort of things that the hon. Member has in mind.

Judicial Appointments

Mr. E. Fletcher: asked the Secretary of State for the Colonies if he will now state what changes will be made in the judicial appointments in the Seychelles.

Mr. Lennox-Boyd: Apart from filling the vacancy in the office of Chief Justice, no changes are contemplated.

Mr. Fletcher: Can the right hon. Gentleman say who the new Chief Justice will be?

Mr. Lennox-Boyd: No, Sir. I am not as yet prepared to say. Consideration is being given to a number of names, and, obviously, a wise appointment will be be made.

Oral Answers to Questions — KENYA

Constitution

Mr. Brockway: asked the Secretary of State for the Colonies what official discussions between the four races who are represented on the Legislative Council of Kenya have taken place on the possibility of constitutional changes before 1960.

Mr. J. Johnson: asked the Secretary of State for the Colonies if he will make a statement upon the further progress in constitutional advance in Kenya following the recent meeting of the European elected members of the Legislative Council led by Sir Charles Vincent and the African Elected Members under Mr. Tom Mboya.

Mr. Lennox-Boyd: I have nothing to add to the repy made by my hon. Friend to the hon. Member for St. Pancras, North (Mr. K. Robinson) on 5th June.

Mr. Brockway: In view of the fact that the Asian Group in the Legislative Council has supported the African Group in asking for further representation, is it not possible in order to ease the situation in Kenya to bring some pressure to bear upon the European Group to meet with them and come to an agreement?

Mr. Lennox-Boyd: The meeting was actually started through the initiative of the Europeans. I think practical results

are more likely to be ensured by the less we talk about it at this stage in this House.

Mr. Johnson: Does not the right hon. Gentleman think he has been much too negative in this matter? Would he consider sending out a constitutional adviser to the Colony to help those unofficial talks which are going on between the Europeans and Africans?

Mr. Lennox-Boyd: No, Sir, I think it is a very positive contribution to enable all the races in Kenya to face the big responsibilities which lie ahead of all of them.

Public Meetings (Tape Recordings)

Mr. J. Johnson: asked the Secretary of State for the Colonies whether the tape recordings made by Kenya Government officials of the speeches of African members of the Legislative Council at their public meetings will be used in evidence against these speakers: and whether copies of these records are deposited with them.

Mr. Lennox-Boyd: The production of these recordings as evidence in any case brought by the Crown for an alleged contravention of the law would be a matter for the Attorney-General of Kenya. I am consulting the Governor on the second part of the Question and will write to the hon. Member when I have his reply.

Mr. Johnson: But would not the right hon. Gentleman agree that the absolute accuracy of tape recording can always be questioned, because it can be so easily tampered with? Does he not think, then, that it is at least against all our canons of justice, and those of the United States and the Continent, to use this sort of evidence now or in the future?

Mr. Lennox-Boyd: I am sure that the hon. Gentleman is not suggesting that the police or any other responsible authority would do that in Kenya—[Hors. MEMBERS: "Oh."] Well, in view of the glowing tributes paid by hon. Members opposite to the Government of Kenya after a recent visit, those jeers sound a little unreal, but I must point out that the value of any such evidence would, of course, be a matter for the court to determine.

Oral Answers to Questions — BAHAMAS

Domestic and Agricultural Workers (Union Representation)

Mr. Allaun: asked the Secretary of State for the Colonies if he is aware that domestic and agricultural workers, comprising the majority of Bahamas wage-earners, are still prevented from joining trade unions by the Trade Union Act, 1943; and what steps he proposes to take to end this ban.

Mr. Profumo: A Select Committee of the Bahamas House of Assembly is at present considering legislation designed to remove restrictions imposed on these workers by the Trade Unions Act of 1943.

Mr. Allaun: Does the Minister remember that eight months ago he told me that the Bahamas Government intended to introduce legislation to end this ban? How much longer is it to continue?

Mr. Profumo: That legislation has since been introduced and is now before a Select Committee of the House of Assembly, which is expected to report in the very near future.

Mr. D. Jones: Is it not the case that recently two civil servants were sent to the Bahamas from the Colonial Office, that they made a report and that report was submitted by the right hon. Gentleman to the Governor and came before the Legislative Council, which rejected it with contempt?

Mr. Profumo: No, Sir, the recommendations that were made for changes are those which the Government now have in mind.

Oral Answers to Questions — NIGERIA

Union des Populations du Cameroun

Mr. Brockway: asked the Secretary of State for the Colonies on what evidence of intention to resort to violence the Union des Populations du Cameroun has been declared by the Governor-General in Council of Nigeria to be art unlawful society; and on what charges 13 leaders have been arrested and ordered to leave the country.

Mr. Lennox-Boyd: In declaring the Union des Populations du Cameroun an unlawful society and detaining some of its alien leaders with a view to deportation, the Acting Governor-General acted on the advice of the Nigerian Council of Ministers and with the full support of the Executive Council of the Southern Cameroons.
This action was in accordance with the Criminal Code and the Aliens Deportation Ordinance, and was taken after careful examination of evidence leading to the conclusion that the U.P.C. had become a serious threat to law and order in the Southern Cameroons. The Governor-General is not bound to give the evidence on which he reached his decision, and I am satisfied that it would not be in the public interest to do so.

Mr. Brockway: Is the right hon. Gentleman aware that many of us take a very serious view when deportations take place from Colonial Territories? Is it the case that these men and women are being deported, not because of any unlawful act, but because, to quote the words of the Extraordinary Gazette,
there now exists a grave possibility that, in order to achieve its political objectives, the party may have to resort to violence.
Are we really deporting men for intentions rather than for acts?

Mr. Lennox-Boyd: The hon. Member works himself up into a state which would give the impression that these people are British subjects. They are aliens who have abused the hospitality of British-protected territory. I have no intention whatever of asking the Government, who have a large measure of local autonomy in the Southern Cameroons—even more as a result of the agreement I have recently made with them—to reconsider the decision they have reached.

Oral Answers to Questions — TRINIDAD AND BRITISH GUIANA

Mr. Alan Bush (Entry Permit)

Mr. Zilliacus: asked the Secretary of State for the Colonies on what grounds Mr. Alan Bush was refused permission by the Government of British Guiana to go ashore in order to record folk songs of the territory.

Mr. Baird: asked the Secretary of State for the Colonies why Her Majesty's Governors in Trinidad and British Guiana refused permission for Mr. Alan Bush to land in their territories.

Mr. Profumo: Mr. Bush was deemed to be an undesirable visitor in both territories under the respective Immigration Ordinance. The Governments concerned are not required to give reasons for this action.

Mr. Zilliacus: Is it not a fact that there is no right of appeal under the existing immigration restriction order against procedure of this sort? Will not the Government take steps to provide that there should be some right of appeal against arbitrary acts of this kind, which have an awful smell of something like the phone tapping scandal to which we have just listened?

Mr. Profumo: No, Sir. I do not think it has got any smell about it at all, and I am not prepared to take any further action.

Mr. Baird: There is a lot of smell about it. This distinguished musician has been found guilty without a trial. Is there no way in which this gentleman can be informed on what ground he has been refused entry into British Guiana? We all know the view of the right hon. Gentleman about Fascism, but in British Guiana the constitution was destroyed, and now that there is to be an election the constituencies have been gerrymandered, and now British subjects have been refused entry.

Mr. Profumo: Those must be matters for local people to decide.

Imperial College of Tropical Agriculture

Mr. Royle: asked the Secretary of State for the Colonies what decisions have been reached as a result of the discussion between the governing bodies of the Imperial College of Tropical Agriculture, Trinidad, and the University College of the West Indies on the proposal to grant university status to the Imperial College of Tropical Agriculture.

Mr. Profumo: I understand that recent discussions between the governing bodies of the Imperial College of Tropical Agriculture, Trinidad, and the University

College of the West Indies were concerned with the question of providing a first degree in agriculture in the Caribbean by developing a special relationship between the two colleges. No final conclusion as a result of these discussions has yet been reached.

Mr. Royle: In view of the regard in which this College is held, not only in the West Indies but throughout the Commonwealth, will the Minister do everything he can to aid this aim?

Housing

Sir R. Robinson: asked the Secretary of State for the Colonies what progress has been made in housing in British Guiana during the last three years; and what proportion of these loans has been financed through the British Guiana Credit Corporation.

Mr. Profumo: Since 1954, over 7,000 houses have been built under Government and private schemes. A further 1,800 are in varying stages of construction. Credit Corporation loans amounted to £1·3 million, representing about two-thirds of the total borrowing during this period.

Oral Answers to Questions — NYASALAND

School Documents (Declaration of Human Rights)

Mr. Pargiter: asked the Secretary of State for the Colonies why permission was refused by the Nyasaland Legislative Council for the United Nations' Universal Declaration of Human Rights to be made available for use in African schools.

Mr. Profumo: I assume the hon. Member is referring to a reply given in the Nyasaland Legislative Council on 7th February to a request that the Government take immediate steps to see that the schools were provided with the Declaration and other United Nations documents as part of their reading materials. The Government spokesman said that the terminology of such documents was such that they were not generally suitable for, nor readily understandable by, schoolchildren.

Mr. Pargiter: Could not something be provided in a simpler form, perhaps with a preface that whilst all men are born


equal in the sight of God, some are more equal than others? Might not something to that effect be suitable?

Mr. Profumo: I think that is a slightly different question. I was answering the Question on the Order Paper, but I will look into what the hon. Member has suggested.

Wages and Conditions

Mr. Pargiter: asked the Secretary of State for the Colonies what are the statutory minimum wages for industrial, agricultural and other classes of labour in Nyasaland; and in which classes rations and housing are included.

Mr. Profumo: As the information requested by the hon. Member is somewhat lengthy, I am arranging for it to he circulated in the OFFICIAL REPORT.

Mr. Pargiter: I am grateful to know that I shall be able to get this information. Is the hon. Member aware that there is considerable dissatisfaction at the extremely low wages paid in Nyasaland, which are lower than in many other parts of Africa? Having regard to the fact that qualifications for voting and matters of that kind are involved, does the hon. Gentleman realise how impossible it would be for any of these people ever to achieve any political equity at all? Can something be done to raise the very low standard?

Mr. Profumo: I think that perhaps when the hon. Member reads my reply he will not feel quite as worried about it. I would add that in practice the minimum wages are often exceeded.

Following is the information:
The statutory minimum wage for agricultural labour, and for industrial and other classes of labour (except in the tailoring industry in the Central Province) employed in industrial areas outside the main towns is 1s. per day and this will be increased to Is. 3d, from 1st July.
2. In the tailoring industry in the Central Province, the rates are:—

Apprentice tailors 1s. 7d. per working day.
3rd class tailors 2s. per working day.
2nd class tailors (and above that grade), 2s. 5d. per working day.
3. The minimum wage for industry and other classes of labour in the main townships is 1s. 4d. per day, which is to be increased from 1st July, 1957, to 2s. per day for the Blantyre/Limbe area and to 1s. 9d. per day for the Zomba/Lilongwe townships.

4. All the above figures are inclusive of the value of proper and sufficient food, if supplied by the employer, and the amount allowed to be deducted for this is limited by law.
5. Generally, for all classes of African labour, employers are required to provide, at their own expense, housing accommodation for any employee who is unable to return to his home on completion of the day's work.
6. The minimum wages are often exceeded in practice and in most industrial employments a free mid-day meal without a deduction from pay is given by employers as an inducement.

Oral Answers to Questions — NIGERIA

Shell-B.P. Petroleum Development Company

Mr. Sydney Irving: asked the Secretary of State for the Colonies what conditions have been imposed in the licences granted to the Shell-B.P. Petroleum Development Company of Nigeria Limited, by the Government of Nigeria with regard to employment and conditions of foreign and African labour, and the safeguarding of trade union rights; and to whom compensation will be paid for the use of the land and natural resources.

Mr. Profumo: Conditions of employment and trade union rights are regulated by the laws of Nigeria. The only condition of this kind in the licences is that the Company must comply with any instructions given by the Chief Inspector of Mines for securing the health and safety of workers. Compensation will be paid to the occupiers and owners of the land.

Mr. Sydney Irving: asked the Secretary of State for the Colonies what concessions have been given to Shell-B.P. by the Government of Nigeria; and what are the conditions of the contract awarded to Taylor Woodrow (Nigeria) Limited, for laying and welding a 10-inch pipe-line from Olibiri to Port Harcourt with regard to labour to be employed and the training of Africans in skilled work connected with such concessions and contracts and royalties to be paid.

Mr. Profumo: Twenty prospecting licences and one exploration licence have been given. The royalty on crude oil is 4s. per ton. on oil produced during the prospecting stage and will be increased to 12½ per cent. ad valorem when commercial production commences. There is


no training requirement in the Shell-B.P. licences but the Company have their own trade school in Nigeria and also give scholarships for technical training in the United Kingdom and Nigeria to suitable Africans. Minimum wage and fair conditions of employment clauses are included in the pipe-line contract. Africans are being trained as tractor drivers and welders.

Mr. Irving: The House will be gratified that progress is being made in the development of oil in Nigeria, but does not the hon. Gentleman agree that it is important that when concessions of this kind are given they should fully accord with the new status of this nation, now approaching independence, and will be not publish the details in the Library so that we can see that they accord with this status?

Mr. Profumo: Yes, Sir. I will look into that.

Mr. J. Johnson: Can the hon. Member say whether oil has been found in sufficiently large commercial quantities to justify the high hopes, because this will make an enormous difference to the future of Eastern Nigeria, in particular?

Mr. Profumo: I agree that it will make a great deal of difference to the future, but I should not like to answer that detailed point without the notice which it deserves.

Coal Exports

Mr. Sydney Irving: asked the Secretary of State for the Colonies what is the amount of coal which is being exported from Nigeria; what amounts are used in the Territory; and for what purpose.

Mr. Profumo: A total of 70,560 tons of coal were exported during the year ending 31st March, 1957. 719,470 tons were consumed in Nigeria, 400,000 tons by the railway and the remainder by the Electricity Corporation and smaller users.

Hydro-Electric Schemes

Mr. E. L. Mallalieu: asked the Secretary of State for the Colonies what are the results of the investigation of the hydro-electrical potential of the Niger River and of the Cameroon Mountains undertaken by the Nigerian Government.

Mr. Profumo: I have asked the Acting Governor-General of the Federation of Nigeria for this information and will write later to the hon. and learned Member.

Mr. Mallalieu: Since it is nearly a year from the time of the publication by Her Majesty's Stationery Office of the pamphlet "Economic Development within the Commonwealth," in which it was stated that these matters were then being pursued actively, can the hon. Member assure us that the very utmost despatch will be used in seeing that this is done, because the need for power in Nigeria is apparent?

Mr. Profumo: I fully accept what the hon. and learned Member says. At the same time, I ought to make it plain that these are immensely complicated matters which of necessity must take a great deal of time to do properly.

Oral Answers to Questions — NORTHERN RHODESIA

African National Congress

Mr. J. Johnson: asked the Secretary of State for the Colonies if he will now publish the findings of the Commission under Mr. Justice Wyndham that sat upon the detention and banishment of African National Congress and trade union leaders from the Copperbelt of Northern Rhodesia.

Mr. Lennox-Boyd: No, Sir. The reports are made to the Governor, and will not be published. As my hon. Friend, the Parliamentary Under-Secretary of State, told the hon. Member on 22nd May, I will let the hon. Member know if the Governor decides to make any substantive restriction orders.

Mr. Johnson: While accepting the fact that these men are exiled for the time being and until the end of the year, may I ask whether the right hon. Gentleman will give the House an assurance that they will be allowed to go back to the Copper-belt, to their homes, their wives and their jobs at the end of the year, when the Bill which has been passed by the Legislative Council expires?

Mr. Lennox-Boyd: I am not prepared to give any assurance. I am only answering this Question. From my own knowledge of the situation—and I was there


fairly recently with the Governor—I am certain that these cases are kept under constant review, and I do not think the hon. Member need fear that justice will not be done in all cases.

Mr. Johnson: Will the right hon. Gentleman give me an assurance that if I put a Question down on this matter he will answer it?

Mr. Lennox-Boyd: I will give an answer.

Oral Answers to Questions — DOMINICA

Doctors

Mr. D. Jones: asked the Secretary of State for the Colonies whether he is aware that the ratio of persons per doctor is considerably higher in the Island of Dominica than any other part of the Colonial Territories; whether he is aware that modes of communication in this island are very bad, adding to the difficulties of doctors seeking to get from one part of the island to another; and what steps he is taking to increase the number of doctors on this island.

Mr. Profumo: The number of doctors in Dominica in relation to population compares favourably with the position in the Colonial Territories generally. I know of the difficulties of communications; a very large road building programme is under way as part of the current development plan. Any question of an increase in the number of Government doctors is for consideration, in the first instance, by the Government of Dominica in the light of other competing demands and of the resources available.

Mr. Jones: The hon. Gentleman will be aware that in a communication which he sent me on 2nd May he revealed that there are three times as many persons per doctor in this island as there are in the United Kingdom; that there are twice as many per doctor in this island as there are in Jamaica; twice as many as in Trinidad, twice as many as in British Guiana, and that, in fact, the mode of transport in this island is worse than in any other island in the West Indies. Is he now saying that he proposes to do nothing at all, except to leave it to the local Government to provide additional doctors?

Mr. Profumo: I said no more than I told the hon. Gentleman in my Answer, but I would add that, bearing in mind the fact that Dominica is poor, the comparison is not bad, and that in Dominica all doctors are provided by the Government. There are no private practitioners.

Oral Answers to Questions — GAMBIA

Housing

Sir R. Robinson: asked the Secretary of State for the Colonies what action has been taken on the report by the housing adviser which recommended a model estate on reclaimed land in Bathurst; and when it is hoped that construction will begin.

Mr. Profumo: The report which my hon. Friend has in mind did not contain final proposals so much as suggestions to be considered further after a more comprehensive survey had been made of local conditions and needs. This is now proceeding.

Sir R. Robinson: asked the Secretary of State for the Colonies what steps are being taken to improve housing conditions in Gambia.

Mr. Profumo: While housing conditions in the Gambia do not compare unfavourably with those in many parts of the tropics, there is much room for improvement, particularly in sanitation. The Gambia Government has begun laying out some of the recently reclaimed land at Bathurst. New building regulations are being prepared. Increasing use is being made of cement products and steel which will reduce the considerable damage caused by termites, and water supplies are being improved in Bathurst and the Protectorate.

Oral Answers to Questions — HOME DEPARTMENT

Air-Raid Shelters, Newcastle-under-Lyme

Mr. Swingler: asked the Secretary of State for the Home Department what representations about the demolition of air-raid shelters he has received from Newcastle-under-Lyme Rural District Council; what inquiries he has made at a result; and what action he proposes to take.

The Secretary of State for the Home Department and Lord Privy Seal (Mr. R. A. Butler): This Council has asked for the removal of two air-raid shelters at Bignall End which are on land on which building development is proceeding. There was no need for inquiries to supplement the information supplied by the Council and I have authorised the demolition of the shelters.

Mr. Royle: Will the Home Secretary look at this matter in the more general sense? Is it not time that all these menaces to good health were pulled down, and will he not now give authority to local authorities to remove them?

Mr. Butler: Well, I have previously answered Questions about other shelters. We do take into consideration the question of health as well as that of potential safety, but I must judge each case on its merits.

Oral Answers to Questions — ROAD AUTHORITY

Mr. E. Johnson: asked the Prime Minister if he will introduce legislation to set up a Road Authority with power to raise loans for road construction.

Mr. R. A. Butler: I have been asked to reply. No, Sir. My right hon. Friend thinks that the present arrangement under which the road programme is in charge of Ministers responsible to Parliament is more satisfactory.

Mr. Johnson: Is my right hon. Friend aware that a road authority has been used with phenomenal success in Belgium? Will he at least study it and see what has been done there?

Mr. Butler: I am sure that my right hon. Friends the Prime Minister and the Minister of Transport will study any example, especially one put forward by my hon. Friend, but the Answer that I have given represents the view of my right hon. Friend the Prime Minister.

Oral Answers to Questions — CYPRUS (ARCHBISHOP MAKARIOS)

Mr. Emrys Hughes: asked the Prime Minister if, in view of the danger of renewed violence in Cyprus, he will propose to Archbishop Makarios that he

and the Archbishop should issue a joint declaration denouncing the use of violence for political ends.

Mr. R. A. Butler: I have been asked to reply. All British Governments and, indeed, the whole British people would happily join in any declaration denouncing the use of violence in Cyprus or anywhere else for political ends. My right hon. Friend would be only too glad if the Archbishop associated himself with those views.

Mr. Hughes: Does that Answer mean that the British Government no longer believe in using violence?

Mr. Butler: The British Government are not using violence. They are maintaining certain precautions, but they have made many relaxations.

Oral Answers to Questions — NUCLEAR WEAPONS AND TESTS

Mr. Grimond: asked the Prime Minister if he will place in the Library of the House of Commons details of the latest medical and scientific conclusions as to the dangers from various types of atomic and nuclear weapons and industrial developments.

Mr. Edelman: asked the Prime Minister whether he will publish the latest report of the Medical Research Council on hydrogen bomb tests.

Mr. R. A. Butler: I have been asked to reply. It would not be in the public interest to give details of the performance of the various types of nuclear weapons, but so far as danger from test explosions is concerned, the degree of danger from fall-out varies not so much according to the nature of the weapon as according to the manner of its detonation. The degree of danger is negligible when high air bursts are used, as they were in the recent British tests.
So far as the industrial use of atomic energy is concerned, the safety precautions taken ensure that there is less risk either to the general public or to the staff on the premises, than from many other kinds of industrial activity.
The latest report of the Medical Research Council was published in June, 1956. Figures for the measurement of fall-out are released periodically by the Atomic Energy Authority, and the two


latest documents have been placed in the Library. It is wrong to suggest that there is a further report which my right hon. Friend has declined to publish.

Mr. Grimond: I thank the right hon. Gentleman for that reply that he will consider placing reports in the Library, but does he not agree that there is considerable doubt and anxiety in the public mind over the whole question of the danger from nuclear weapons and industrial processes? Could he not consider, without giving away State secrets, issuing a simple statement of what the dangers are, and how they vary between one weapon and another and one process and another?

Mr. Butler: In so far as the matter can be simplified it has been done by my right hon. Friend the Prime Minister, notably in his major speech on the subject, but, of course, anything we can do to bring this home to people in simple language we shall attempt to do.

Mr. Gresham Cooke: Is my right hon. Friend aware that experiments are now going on in America into the use of using beta and gamma rays for the preservation of food, and that the American Army is setting up a plant, using the radiation from by-products of nuclear fission for food preservation? In the light of that, does he not think that really too much play is being made of some of the dangers of radiation in other respects?

Mr. Butler: I should need to examine the evidence submitted by my hon. Friend before I gave a final answer.

Oral Answers to Questions — BURDEN ON MINISTERS (PRIVY COUNCILLORS' INQUIRY)

Mr. Emrys Hughes: asked the Prime Minister if he will consider asking the Committee of Privy Councillors studying the question of the burden on Cabinet Ministers to report as to how far these burdens might be relieved by extending the committee system which will enable more honourable Members to take their share in the work of Government.

Mr. R. A. Butler: I have been asked to reply.
No doubt the Committee of Privy Councillors will take note of this suggestion, although my right hon. Friend is not quite clear exactly what the hon. Gentleman has in mind.

Mr. Hughes: Is the Leader of the House aware that what I had in mind was that if the Committee system were extended, many hon. Members on both sides of the House with great experience of all kinds of industrial and social problems would have an opportunity of giving greater service to the House, and relieving the Ministers?

Mr. Butler: What I was not quite sure about was whether the hon. Member had in mind the idea of Congressional Committees as in the United States. If so, I am not at all clear that it would lessen the burden on Ministers. Judging by the experience of the United States legislature, it would increase the burden on Ministers.

Mr. Emrys Hughes: asked the Prime Minister what steps he intends to take to lighten the burden which now falls on the holder of the office of Secretary of State for Foreign Affairs.

Mr, R. A. Butler: I have been asked to reply.
This is also a matter which will no doubt be considered in general by the Committee of Privy Councillors.

Mr. Hughes: Is the Leader of the House aware that the Foreign Secretary is showing obvious signs of overstrain, and that the right hon. Gentlemon would be doing a good service to the Minister and to the country if he relieved his right hon. and learned Friend of these onerous burdens, including those of broadcasting in "Women's Hour"? Is he aware that responsible American papers recently said that the odds are three to two that the Foreign Secretary will be removed of his office by the autumn, and are these odds the real odds?

Mr. Butler: Her Majesty's Government have the utmost confidence in the ability and freshness of my right hon. and learned Friend the Foreign Secretary, and if he is to be relieved of certain anxieties, perhaps the hon. Gentleman will put down fewer Questions of this sort on the Order Paper.

TELEPHONE COMMUNICATIONS (INTERCEPTION)

The following Questions stood upon the Order Paper:

Viscount HINCHINGBROOKE: To ask the Secretary of State for the Home Department (1) whether he will list the alleged offences for which permission is given to tap telephone calls;
(2) how many times in the last 12 months permission has been given to the police to tap telephones; and what was the average annual incidence in the interwar years; and
(3) what steps he takes to ensure that no police tapping of telephone calls takes place without his express permission; and whether such permission is given in categories or only in individual cases.

Mr. LEWIS: To ask the Secretary of State for the Home Department if he will give the dates since 1945 when the telephone at the National Trade Union Club, 12, Great Newport Street, was tapped, and details of other trade union organisations which have had their telephones tapped since 1945.

Mr. COLLINS: To ask the Secretary of State for the Home Department the number of occasions, since 1st January, 1956, when the police have been authorised to tap telephones, and, of these, the number of such authorisations which were made, respectively, on grounds of security and to assist in the detection or prevention of crime.

Mr. GRIMOND: To ask the Secretary of State for the Home Department at whose request or suggestion the results of the tapping of Mr. Marrinan's conversations were handed over to the Bar Council.

Mr. E. FLETCHER: To ask the Secretary of State for the Home Department if he will advise an exercise of powers under Section 4 of the Judicial Committee Act, 1833, for hearing and advice by the Judicial Committee of the Privy Council on the extent of the prerogative rights of the Crown to intercept telephone conversations between private persons and to convey a record of them to third parties.

Mr. LEE: To ask the Secretary of State for the Home Department on what occasions telephone conversations involving trade union officials have been tapped by State security organisations.

Mr. LANGFORD-HOLT: To ask the Secretary of State for the Home Department, (1) on how many occasions in each calendar year since 1945 his authority has been sought for the tapping of telephone lines, firstly, in cases involving national security, and secondly, in cases involving serious crime;
(2) what categories of crime are covered by the definition of serious crime in cases where his authority may be sought for the tapping of telephone lines.

Mr. LIPTON: To ask the Secretary of State for the Home Department for what offences other than treason or espionage permission is granted to tap telephones.

The Secretary of State for the Home Department and Lord Privy Seal (Mr. R. A. Butler): As the Questions on the Order Paper dealing with telephone intercepts have not been reached, I will, with your permission, and, perhaps, for the convenience of the House, answer these Questions now in the form of this general statement.
First, as regards the manner in which the power of interception is exercised. Interception is carried out not by the police but by the Post Office, acting on the authority of a warrant of a Secretary of State addressed to the Postmaster-General. The police and the Post Office are well aware that this authority is required; and I am informed that if a Post Office servant intercepts a telephone line and discloses the information obtained contrary to his duty he commits an offence.
The Secretary of State considers each application to intercept a telephone line individually; permission is not given in relation to categories of offence or in relation to all offences of a given description. Each application is considered in relation to the circumstances of the particular case. No list of categories or offences can, therefore, be given.
The answer to a further series of Questions is that, as I informed the House on 25th June, I should not be justified in the public interest in disclosing either the number of interceptions authorised or


whether a warrant has been issued in any particular case or in relation to any particular class of persons.
I have also been asked at whose request or suggestion the results of intercepting were handed over to the Bar Council in a particular case. The answer is as follows:
On 26th October, 1956, the Attorney-General, as Head of the Bar, referred to the Bar Council a complaint of alleged unprofessional conduct by Mr. Marrinan, in a matter about which evidence had been given in a trial at the Central Criminal Court. The Secretary of the Council asked the police whether any further information was available about Mr. Marrinan's conduct. The only further information in the possession of the police was information obtained in June and July, 1956, as the result of an interception of the telephone line not of the barrister but of a Mr. Hill.
The Secretary of State authorised disclosure of this information to the Chairman of the Bar Council, the right hon. and learned Member for St. Helens (Sir H. Shawcross), who subsequently asked that he might have a copy of it and for permission to disclose its existence to the Bar Council, to the Benchers of Mr. Marrinan's Inn, and to Mr. Marrinan, so that, if necessary, it might be used in connection with any investigation into the conduct of Mr. Marrinan. This permission was given.
As regards the suggestion that this matter should be referred to the Judicial Committee of the Privy Council, my present view is that this procedure is neither necessary or appropriate.
Finally, the House would like to know that my right hon. Friend the Prime Minister and I are meeting the Leader of the Opposition and the Leader of the Liberal Party this evening to discuss how certain aspects of this matter could best be handled in future.

Mr. Gaitskell: On the last sentence of the right hon. Gentleman's statement, I should like, to avoid any possible misunderstanding, to make it clear that, while I am very glad to meet the Prime Minister and the right hon. Gentleman to discuss this question, there can be no question, as far as we are concerned, of ignoring either the past or the present

situation, nor could there be any question of our regarding such a meeting as a substitute for a debate in this House.
May I ask the right hon. Gentleman, as I asked him just before the Whitsun Recess, whether there is any precedent for disclosure of information obtained in this way to any outside body, and, if there is no such precedent, why did the then Home Secretary make this disclosure?

Mr. Butler: I quite understand the reservations made by the right hon. Gentleman about the meeting this evening. No terms and conditions have been laid down for the meeting, and, no doubt, we may have reservations of our own on our side. But I hope that the meeting will be successful in making some progress with this matter and seeing how this sort of question could best be handled in the future. That is all we can hope, and that the meeting will be successful.
On the question of precedent, it is not easy to discover a case similar to this, so far as my researches have gone up to date. As I said, we do not intend that this shall be a precedent.
As regards the reference to my predecessor, I should simply like to say that, from studying the papers, I am quite satisfied that he acted with the highest motives in handing this information over, because he felt that he was doing something which might help to retain the highest standards of the Bar. I am satisfied as to his motives in so doing.

Mr. Gaitskell: There is, of course, no question of impugning the motives of the noble Lord who then held the office of Home Secretary, but there is very grave doubt as to the appropriateness of his action. Will the right hon. Gentleman make it plain that on no future occasion will any information obtained in this way be disclosed to the Bar Council?

Mr. Butler: I think we might even take the matter further than that. I certainly do not propose that this matter should be treated as a precedent, and I hope that, partly out of our meeting this evening and out of further developments, we may be able to form some procedure which gives satisfaction to the House in this matter. I think that that would be more satisfactory to all concerned.

Mr. Grimond: If, as I understand, the then Home Secretary actually volunteered the information that this tapping had taken place, does the present Home Secretary hold that that could possibly have been covered by the prerogative in any form?

Mr. Butler: The prerogative covers only the question of the Secretary of State of the day authorising interceptions, and the rest is a matter of judgment on the part of the Secretary of State of the day in regard to the action he took. He responded, in fact, to a request from the secretary of the Bar Council to the police, asking whether any further information was available about Mr. Marrinan's conduct. When it was discovered that this further information was available, he decided, in his discretion, to make it available, for the reasons I have given.

Viscount Hinchingbrooke: On the general issue, is my right hon. Friend aware that so much public anxiety has been aroused that it is unlikely to be resolved by a debate, because my right hon. Friend will feel himself just as restricted in that debate as he has been in his considered answers to Questions which have been put down. In those circumstances, would it be possible to consider, with the right hon. Gentleman the Leader of the Opposition, the appointment of a Select Committee of this House to take evidence and report, with discretion, to the House and the country?

Mr. Butler: I myself feel that something rather more than a debate may be necessary, although, of course, I do not exclude a debate in our ordinary constitutional procedure. It is precisely that sort of matter which I should like to discuss with right hon. Gentlemen and my right hon. Friend this evening, when we have an opportunity. We will take into account what my noble Friend suggests. I am not quite certain that the solution would be exactly on those lines, but I think that it may be necessary to reassure the House in some way on the sort of lines he suggests.

Mr. H. Morrison: The Home Secretary, I thought, suggested earlier that this information was given at the request of the chairman of the Bar Council specifically—[HON. MEMBERS: "The secretary."]—or the secretary; I thought it

was then the chairman. In view of his later statement, may I ask the Home Secretary now whether it is the case that the Bar Council asked the police whether they had any further information on the case, which may have been quite legitimate, but that then the then Home Secretary voluntarily offered the record which was the result of the interceptions? In those circumstances, would not the Home Secretary agree that the major responsibility for this exceptional action was not on the Bar Council, but on the then Secretary of State?

Mr. Butler: It is a little difficult exactly to apportion responsibility. The right hon. Gentleman is correct in saying that the original request as to whether there was any information came from the secretary of the Bar Council to the police. The further, subsequent, development was that the Secretary of State, as I said in my statement today, authorised the disclosure of this information to the chairman of the Bar Council. I think that hon. Members must, therefore, make up their own minds where they think responsibility lies.

Mr. Gaitskell: Is it not the case that the Home Secretary authorised the disclosure of this information in the first place to the secretary of the Bar Council and that only subsequently did the chairman of the Bar Council ask for a copy of the transcript?

Mr. Butler: Exactly what happened was this. The information was, as I have ascertained from the papers, made available to the secretary of the Bar Council. It so happened that the chairman was away at the time and the information was made available to the secretary. When the chairman returned, he gained this information and subsequently contact was made between the chairman of the Bar Council and the Secretary of State of the day. The right hon. Gentleman is correct in saying that, in the first place, the information was given to the secretary.

Mr. Doughty: As members of the Bar have to take part in the public administration of public law, is it not vital that their conduct, if criticised, should be inquired into from every angle and that all information, from whatever source, should be available to that inquiry?
My right hon. Friend referred to the tapping of the telephone conversations of a Mr. Hill. Is that the same gentleman who, I have read in the papers, describes himself as the "King of the underworld?"

Mr. Butler: The answer to the latter part of my hon. and learned Friend's supplementary question is, "Yes, Sir." He does describe himself by that title, which, I think, he seems to have deserved.
The answer to the first question is that I would rather make no further observations, because, as everybody knows, this case is being considered by the Benchers today, tomorrow and the next day.

Mr. Fletcher: In view of the very wide anxiety that this case has aroused, and the grave doubts concerning the extent of the prerogative claimed by the Home Secretary, will the Government not reconsider the desirability, to ally public anxiety, of referring this whole question to the Judicial Committee of the Privy Council, so that there may be an authoritative pronouncement not only on the extent of the prerogative to tap telephone conversations, but on whether such prerogative exists and covers in any circumstances the conveying of such information to outside bodies?

Mr. Butler: I am satisfied that my predecessors have exercised this power from the very earliest time, not only in respect of letters but also telegrams and, after the Edison case, in relation to telephones—that is, for many years. I am satisfied that they have been right in doing so. I would rather not give a final opinion on the legal position in question and answer, because it is extremely complicated. Therefore, I would rather reserve that for another occasion when a decision can be taken with the advice of our own Law Officers.

Mr. Langford-Holt: Is my right hon. Friend aware that everyone appreciates that he has a very difficult job in holding the balance between the freedom of the individual and the security of the State? If, however, this House is to maintain its control over such matters, will my right hon. Friend consider the possibility of some form of return to this House, directly or indirectly, as to how this power has been used previously?

Mr. Butler: If we did that, we should have to do it with some regard to the question of security and the obvious question of secrecy, but I will certainly bear in mind what my hon. Friend suggests.

Mr. Shinwell: In view of allegations that have been made that the telephone communications of hon. Members have been tapped, can the Home Secretary give an assurance that that is not so and that hon. Members will be protected against infiltrations of this kind?

Mr. Butler: I am not prepared to depart from the general line taken by myself and, I notice, also by Sir William Harcourt and some of my more distinguished predecessors, by naming any category of persons who may be covered by this power. That does not mean that by taking a line of that sort I am implying that any hon. Member's telephone has, in fact, been interfered with. I am simply saying that I am not prepared to make any exception in regard to the categories mentioned.

Mr. Shinwell: Are we to understand from that astonishing reply that at present, or in the past, and in the future—

Mr. F. Harris: The right hon. Gentleman was in power too.

Mr. Shinwell: —telephone communications of hon. Members can be—[An HON. MEMBER: "Are being."]—intercepted? If hon. Members opposite prefer to have that situation, they can have it. Can we be assured that the communications of hon. Members on this side are not being intercepted? In the absence of a definite assurance of that kind, can we have a response to the quite legitimate request of the noble Lord the Member for Dorset, South (Viscount Hinchingbrooke), that a Select Committee of this House be set up to inquire into the whole matter?

Mr. Butler: The only assurance I can give to the right hon. Gentleman on this important matter, which, I quite understand, affects the feelings of all hon. Members and may, indeed, arouse a feeling of Privilege, is that I am quite prepared to consider that tonight with the Leader of the Opposition and the Leader of the Liberal Party, but I am not prepared to issue statements about categories of persons, including Members of Parliament.
In this connection, I go back to a precedent, although telephones were not invented at that time, on the subject of interception of communications in 1735, from which date the House has always resolved that the Secretary of State of the day has special powers by warrant. I am not prepared to go back on the tradition, nor am I prepared to make any statement of categories.

Mr. Bellenger: Is not the question of the interception of telephone calls of Members of Parliament a matter that might raise a question of Privilege, in which you, Mr. Speaker, would have to be concerned? Although I do not ask for any Ruling at the moment, might it not be a question that you should consider and upon which you, as the guardian of the rights of hon. Members of this House, should guide us?

Mr. Speaker: The House is the guardian of its own privileges. My duties, as I have frequently explained, are procedural, if a case is brought before me, to say whether a prima facie case has been made out. There is, however, no sort of case before me at the moment and I could not express an opinion without such a case and its relevant facts.

Mr. Fort: Is my right hon. Friend aware that many of us in this House want to be treated in this matter like our fellow citizens and that that is only fair?

Mr. Lee: If the right hon. Gentleman will not mention categories of people, can he give the House any assurance on the number of occasions on which this practice is now happening? In other words, is it happening more frequently now than at any other period?

Mr. Butler: I do not think that I should be out of order in saying that, having looked at the records very carefully, I see really no difference in practice under the present Administration and that which was carried out under my predecessors. I certainly see no increase of the power used, which, as I have said before, is a distasteful power and must be used with great care by the Secretary of State of the day.

Mr. Lipton: Is the right hon. Gentleman aware that everything he has said today still leaves the position most unsatisfactory from the point of view of

both hon. Members and the general public, and that we are justified in believing that we are living in a police State? In view of the fact that it is, I think, generally agreed that there should never be any disclosure of police intercepts to outside bodies, why did the Home Secretary reject the suggestion made by my right hon. Friend the Leader of the Opposition to recall the transcripts that had been wrongly sent to the Bar Council? Why did he reject that legitimate suggestion and not show that at least to that extent he regretted the very grave blunder that had been made in disclosing these intercepts to an outside body?

Mr. Butler: I did not take any further action on the transcripts because I thought they seemed to have got quite enough publicity already—in fact, many people, in the Press and elsewhere, say that they have seen them—and I did not think that it would do any good to withdraw the transcripts from the Bar Council. Nor do I think it would have been right to do so in view of the motives which animated my predecessor in sending them to the Bar Council.

Mr. Collins: Although the right hon. Gentleman refuses to give any information about categories, will he say whether this power of interception of telephone conversations has been used in any type of case other than security or the detection of crime? If so, what are the criteria which would govern the right hon. Gentleman in his decision on these matters?

Mr. Butler: I am not aware of cases which would not fall within the categories I have mentioned in my previous statement, namely, national security or the detection of crime, and those should be the criteria in dealing with these matters.

Mr. Shinwell: The right hon. Gentleman referred to a meeting which is to take place tonight with the Leader of the Opposition 'and some of his right hon. Friends and, I think, the Leader of the Liberal Party. Are we to understand that a report of the proceedings will be made to the House, or is there any possibility of interception of some kind? Quite seriously, are we to understand that the House will be informed of the deliberations?

Mr. Butler: That is a matter for agreement between those who are meeting this evening. What is quite clear is that owing to the great interest naturally aroused in this matter in the House and in the country we certainly have, to use a House of Commons expression, to report progress in due course to the House.
As Leader of the House, I should like to say that, although these discussions are taking place officially with the Leader of the Opposition and the Leader of the Liberal Party, I do not exclude contact with any other right hon. or hon. Member who is keenly interested in the subject. If I can be of service to them I shall be at their disposal.

Later—

Mr. Short: On a point of order, Mr. Speaker. When the Home Secretary was answering Questions on telephone tapping, I stood on my feet each time and tried to catch your eye. One Privy Councillor asked these supplementary questions, and on each occasion when he was called I was on my feet. In fact, I think I was the only hon. Member who stood up and was not called. May I ask whether there is any limit to the precedence given to Privy Councillors on these occasions?

Mr. Speaker: There is no limit to the discretion which may be exercised by a Privy Councillors, if that is what the hon. Member is asking, but that is another matter. I fear I could only find time for Privy Councillors and those who took the trouble to put Questions, on the Order Paper, and I do not recollect that the hon. Member did so.

Mr. Short: Further to that point of order, Sir. The point I am putting is not that at all. The point I am putting is whether or not the Chair is bound to call a Privy Councillor on every occasion when he stands up, especially in a series of Questions like this, when he has already had one supplementary question.

Mr. Speaker: I think I must say that there are limits to the patience of the

Chair. I have to exercise my duties bearing in mind the long-continued practice of the House.

BARNBURGH MAIN COLLIERY (EXPLOSION)

Mr. T. Williams: (by Private Notice)asked the Paymaster-General whether he has any statement to make on the gas explosion at the Barnburgh Main Colliery on Wednesday, 26th June.

The Parliamentary Secretary to the Ministry of Power (Mr. David Renton): An ignition of fire damp occurred at about 3 p.m. yesterday, 26th June, at Barnburgh Main Colliery, Yorkshire, when a shot was being fired in a back ripping about 70 yards from the face of a middle gate leading to a long wall conveyor face.
I regret to have to inform the House that 20 men working at the face were burned, some severely. I am sure that the House will wish to join with me in hoping that the injured men will make a speedy recovery.
Her Majesty's inspectors are investigating the circumstances.

Mr. Williams: Whilst associating myself with every right hon. and hon. Member in expressions of sympathy, may I ask the hon. and learned Gentleman whether, despite the fact that mercifully there have been no fatalities so far, the ordinary kind of inquiry will be undertaken to ascertain the real cause of the explosion?

Mr. Renton: I am not quite sure what the right hon. Gentleman means by "ordinary kind of inquiry". The first step is that Her Majesty's inspector should investigate the full circumstances. That necessarily may take some time, owing to the fact that some of the necessary witnesses have been injured. When that has been done it will be for my noble Friend to decide what formal steps, if any, should be taken by way of special report or public inquiry.

BUSINESS OF THE HOUSE

Mr. Gaitskell: May I ask the Leader of the House whether he will state the business for next week?

The Secretary of State for the Home Department and Lord Privy Seal (Mr. R. A. Butler): Yes, Sir. The business for next week will be as follows:
MONDAY, 1ST JULY AND TUESDAY, 2ND JULY—We shall resume the Committee stage of the Finance Bill.
WEDNESDAY, 3RD JULY—It is hoped to conclude the Committee stage of the Finance Bill by 7 o'clock.
The House is no doubt aware that the Deputy Chairman of Ways and Means has already set down an opposed Private Bill—the Liverpool Corporation Bill [Lords]—for consideration at 7 o'clock on that evening.
Consideration of the Motion to approve the White Fish and Herring Industries (Conversion Grants) Scheme.
THURSDAY, 4TH JULY—Report stage of the Coal Mining (Subsidence) Bill.
Committee and remaining stages of the Winfrith Heath Bill.
FRIDAY, 5TH JULY—Conclusion of the Report stage of the Coal Mining (Subsidence) Bill, if not already concluded, and Third Reading.
We then hope to obtain the Second Reading of the Army Enlistment Bill, and of the Tanganyika Agricultural Corporation Bill, for which Bill a Money Resolution is also necessary.
In addition to the business already announced, we hope it will be agreeable to the House to take tonight the Committee and remaining stages of the Superannuation Bill.

Mr. Gaitskell: I understand that the remaining stages of the Superannuation Bill are almost entirely formal and, as the Bill is urgently required, the Opposition are prepared to agree to the right hon. Gentleman's proposal on it.

Mr. Butler: I am very much obliged to the right hon. Gentleman.

Mrs. Jeger: In view of the fact that the safety and lives of many of our folk in

Cyprus are dependent upon the continuance of the uneasy truce in the island, may I ask the right hon. Gentleman whether he can say when the House can have an opportunity to discuss a more permanent solution to this grievous problem?

Mr. Butler: As the hon. Lady knows, there was an interchange at Question Time with my right hon. Friend the Colonial Secretary, but I realise that there is anxiety on this matter in the House. All I can do is to undertake to discuss it with my right hon. Friend.

Mr. Hamilton: Can the right hon. Gentleman give any assurance that the Government will find time between now and the Summer Recess for some debate, whether a full or a half-day, on the United Nations Report on events in Hungary late last year?

Mr. Butler: I cannot give any undertaking, but I will make a note of what the hon. Member has said.

Mr. Blenkinsop: Will any arrangement be made for the House to discuss the very important Royal Commission Report on Mental Illness and Mental Deficiency?

Mr. Butler: I do not know whether we shall have time before we rise in August, but this is a matter on which we are at present consulting. It is of the utmost importance. I will bear in mind that the House must have an opportunity of considering it before there is any question of the Government having to make up their mind on action.

Mr. Gower: In view of the fact that there has been a period of greater stability in the cost of living in recent months, may I ask my right hon. Friend whether there will be an opportunity at an early date to discuss the increase in coal charges and the possibility of increases in postal charges, which have come as a great shock to public opinion?

Mr. Butler: I will make a note of that, also.

Mr. Fernyhough: Can the Leader of the House say when the necessary legislation to give Parliamentary sanction to


the increases of pay which the judges are already receiving is to be brought before the House? What is causing the delay?

Mr. Butler: I cannot give an exact date, but I have it in mind.

Mr. Nabarro: Will my right hon. Friend—

Mr. Speaker: Order. The hon. Member started to speak before he was called.

Mr. Nabarro: If I did so, Mr. Speaker, I humbly apologise. There was so much noise going on on the Front Bench opposite. May I start the question again?
My right hon. Friend the Leader of the House will recall that I asked him, fourteen days ago, whether it would be possible to have a debate this year, within a reasonable time of the publication of the Report and Accounts of the National Coal Board, instead of waiting for a period of six or eight months before the debate took place. Can my right hon. Friend say, therefore, whether the three days allotted to the nationalised industries will form the subject of debate before we rise in August?

Mr. Butler: There will be a real difficulty in fitting in a day and we must try to see what can be done. I realise that my hon. Friend wishes to consider this matter in relation to the publication of the Report and not too late. Further than that I cannot go today.

Mr. Shinwell: Do I understand from the reply that the Leader of the House gave to my hon. Friend the Member for Jarrow (Mr. Fernyhough) about judges' salaries that these gentlemen are receiving the increases of salary arranged for them without the necessary legislation? Does not that mean that this is an illegal act? If so, ought not the Government to be indemnified for having provided increases of salary without legislation? What is the cause of this? If that can be arranged in the case of judges, could it not be arranged for hon. Members, who are rather more impoverished?

Mr. Speaker: That may be a very important matter, but it is not a question on next week's business.

LUNG CANCER AND SMOKING

The Parliamentary Secretary to the Ministry of Health (Mr. J. K. Vaughan-Morgan): The House will be sorry to learn of the sudden illness of my right hon. Friend the Minister of Health. With your permission, Mr. Speaker, and that of the House, I wish to make a statement on lung cancer on his behalf.
In its Annual Report, and more particularly in its special report on tobacco smoking and cancer of the lung—which will be available in the Vote Office at 5 p.m. this evening—the Medical Research Council has advised the Government that the most reasonable interpretation of the very great increase in deaths from lung cancer in males during the past twenty-five years is that a major part of it is caused by smoking tobacco, particularly heavy cigarette smoking. The Council points to the evidence derived from investigations in many countries in support of this conclusion in particular to identification of several carcinogenic substances in tobacco smoke.
The Government feel that it is right to ensure that this latest authoritative opinion is brought effectively to public notice, so that everyone may know the risks involved in smoking. The Government consider that these facts should be made known to all those with responsibility for health education. The Minister of Education included in his recently published Handbook for Teachers on Health Education advice about the dangers of smoking and he is circulating copies of this statement to local education authorities and education authorities generally. Corresponding action will be taken by the Scottish Education Department in Scotland.
The Government now propose to bring these views to the notice of the local health authorities who are concerned under Statute in the prevention of illness and who are responsible for health education as a means of prevention. Local health authorities will be asked to take appropriate steps to inform the general public and in this task they will have the assistance of the Central and Scottish Councils for Health Education.
Once the risks are known everyone who smokes will have to measure them


and make up his or her own mind, and must be relied upon, as a responsible person, to act as seems best.
The Medical Research Council is at present supporting an extensive programme of work designed to discover the way in which tobacco smoke exerts its effect and the relative importance of other factors, such as atmospheric pollution, which may also play a part in the causation of lung cancer. The recent expansion of this programme has been greatly assisted by a substantial grant made in 1954 by a leading group of tobacco manufacturers; on the advice of my right hon. Friend's predecessor, the present Minister of Labour, this sum was given to the Medical Research Council with complete discretion as to the choice of research projects to be supported and to the publication of results.
The work at present in progress consists largely of chemical and biological studies of the many different constituents of tobacco smoke and atmospheric pollution. In addition, surveys of the role of atmospheric pollution and of specific industrial hazards in the causation of the disease are being, undertaken. Work along these lines is being supported in many centres in different parts of the country and the Council has also established, as part of its own organisation, three new research groups in Exeter, London and Sheffield, where long-term studies of different aspects of the problem are being carried out. Every opportunity will be taken by the Medical Research Council to pursue any promising new lines of research which may become apparent.

Mr. Lipton: On a point of order, Sir. Is not the Parliamentary Secretary, in effect, answering Question No. 94, whether by accident or design?

Mr. Speaker: I gather not. This is a statement.

Dr. Summerskill: I should like to express the sympathy of my right hon. and hon. Friends with the Minister and the hope that he will have a speedy recovery.
I welcome the statement which the Parliamentary Secretary has made, because I believe it contains a warning, a rather overdue but important warning, to the smokers of this country. May I ask him two questions? First, will he also consider following, in his publicity,

a practice which has been adopted in the public health field before—that is, to display notices in those places where large numbers of people congregate? Secondly, would the hon. Gentleman tell us how he proposes to counter the propaganda of the tobacco interests, who are seeking to allay the fears of the public?

Mr. Vaughan-Morgan: May I express to the right hon. Lady my gratitude for her good wishes to my right hon. Friend, which I shall extend to the Minister's wife, who has had some anxious hours.
On the point about publicity, we are proposing, in this case, to use the local health authorities as the agents for the dissemination of information. A circular is going to them today asking them to take appropriate steps to inform the general public.

Mr. Wade: May I add my sympathy with the right hon. Gentleman the Minister of Health in his illness?
I do not want to ask a frivolous question but the hon. Gentleman referred to the effect of heavy cigarette smoking on males. May we assume, first, that heavy cigarette smoking on the part of females might have a similar effect? In the investigations that are taking place, may I ask, secondly, whether the Medical Research Council will consider the comparative effects of different qualities of tobacco? Thirdly, will consideration be given to the effect of saltpetre in the paper which is used in the making of cigarettes?

Mr. Vaughan-Morgan: On the question of cigarette smoking by females, there has been an increase in the incidence of lung cancer, but I would ask hon. Members not to ask too many technical questions—I am not trying to evade anything—until they have had a chance to study the Report itself and the circular which is going out. I am sure that the Medical Research Council will bear in mind the other points raised by the right hon. Gentleman.

Mr. Turton: Can my hon. Friend say whether the Report contains any observations on the effect of giving up heavy smoking on the risk of contracting cancer of the lung?

Mr. Vaughan-Morgan: It does say that it helps to give up smoking at a certain period of life.

Mr. Lipton: May we have an assurance from the Parliamentary Secretary that the Government will not impose any restriction on reasonable expenditure by local health authorities in the publicity they want to undertake to let people know of the dangers of lung cancer? Will he also say whether, in the case of local health authorities that do not take appropriate action, measures will be taken to compel them to do what is necessary?

Mr. Vaughan-Morgan: The publicity material will be supplied by the Central Council for Health Education and it will be purchased by the local health authorities, who receive an Exchequer grant of 50 per cent. of their expenditure. As to defaulting authorities, we will see how they get along.

Dr. Bennett: Will my hon. Friend bear in mind the possibility of his Department encouraging the putting up of notices banning smoking in places of public assembly, in view of the fact that many who do not smoke find themselves inhaling other people's smoke in large quantities in such places?

Mr. Vaughan-Morgan: I am sure that that is a point which will be brought forcefully to the attention of all local health authorities.

Mr. Blenkinsop: Would the hon. Gentleman agree that what is needed here is continuing education rather than a single, settled campaign? Secondly, would he give us an assurance that there will be no limitation on the availability of finance into further research into this problem, as it becomes possible'?

Mr. Vaughan-Morgan: On the latter point, I will, if I may, quote my own words in an Adjournment debate on 1st March:
It can fairly be said that there is at present no promising line of research which is being neglected for lack of funds."—[OFFICIAL, REPORT, 6th March, 1957; Vol. 565, c. 1645]
The limiting factors are personnel and ideas. I am sorry, I have forgotten the hon. Gentleman's other question.

Mr. Blenkinsop: The other question was on continuing education.

Mr. Vaughan-Morgan: Yes, this is a question of continuing education.

Lady Tweedsmuir: Will my hon. Friend say whether it is now considered that smoking is a major cause of cancer? Will he also say what grant is given by the Government to direct research into this particular cause of cancer?

Mr. Vaughan-Morgan: I want to choose my words very carefully on the first part of the noble Lady's question. I think it would be best if hon. Members drew their own conclusions from the Report. Words in this matter are of the greatest importance.
As to the amount which is being spent, the Medical Research Council's expenditure on this particular item has risen substantially and now amounts to approximately £40,000 a year. That is quite apart from expenditure on cancer research generally.

Mr. Usborne: Has the Minister considered a slightly different aspect from that which has been put by my right hon. Friend the Member for Warrington (Dr. Summerskill) and an hon. Member opposite—namely, that the public object to inhaling the atmosphere created by other smokers, so much so that I want to ask whether he will consider banning smoking altogether in public vehicles, or, at any rate, seeing that smoking is forbidden at peak hours, and whether, in particular, he will see that there are more non-smoking carriages in railway trains?

Mr. Vaughan-Morgan: Many of those are questions which should be addressed to some of my colleagues. As a non-smoker myself, I should not allow myself to be prejudiced in my reply.

Mr. Fort: Would my hon. Friend point out to the health education authorities that local authorities have the power to stop smoking in cinemas and thereby to bring this country into conformity with almost every other civilised country in the world?

Mr. Vaughan-Morgan: I am sure that all local health authorities will pay great attention to everything which has been said today.

Mr. M. Stewart: Will the hon. Gentleman, together with his colleagues, consider whether central and local government and public corporations ought any longer to accept advertisements for tobacco in any of the media under their control?

Mr. Vaughan-Morgan: That raises rather different issues, if I may say so.

Mr. C. Howell: Now that the Ministry has accepted the fact that lung cancer or carcinoma is on the increase, and since I also presume that it has accepted the fact that tuberculosis is on the decrease, would the Ministry now consider giving directives, or making recommendations, to the regional hospital boards that where facilities are available, and where beds are becoming vacant in tuberculosis hospitals, they should be turned over to chest investigation units?

Mr. Vaughan-Morgan: I do not think that a general answer on that matter would be very helpful. I think that that ought to be considered in detail in particular regions. As for the first part of the hon. Member's question, what the Government have done throughout is to make available to the public the facts as they have become known.

Mr, Langford-Holt: My hon. Friend said that local health authorities are being asked to take appropriate steps to inform the general public. Do we infer from that that they are being asked to consider or to take no other steps in that direction, but merely to see that the public are informed?

Mr. Vaughan-Morgan: That is their main duty, as the authorities responsible for the prevention of illness. The means by which they carry it out is for the moment for them to decide.

Mr. Woodburn: Would the hon. Member consider making use of the valuable services of the B.B.C. in this direction, because science on television will bring home to people more quickly than anything else the terrors of this disease? A great many people think of cancer only as a name, but if the B.B.C. could show the speed with which this disease works on the lungs I am certain that it would bring the matter home to people in a far more serious way.

Mr. Vaughan-Morgan: I shall be giving some information on B.B.C. television and radio today.

BUSINESS OF THE HOUSE

Proceedings on the Superannuation Bill exempted, at this day's Sitting, from the provisions of Standing Order No. 1 (Sittings of the House).—[Mr. R. A. Butler.]

SCOTTISH ESTIMATES

Committee of Supply discharged from considering the Estimates set out hereunder and the said Estimates referred to the Scottish Standing Committee:—

Class VIII, Vote 12, Department of Agriculture for Scotland;

Class VIII, Vote 13, Fisheries (Scotland) and Herring Industry.—[Mr. R. A. Butler.]

Orders of the Day — FINANCE BILL

Considered in Committee. [Progress, 26th June.]

[Sir GORDON TOUCHE in the Chair]

Clause 21.—(OVERSEAS TRADE CORPORATIONS: DISQUALIFICATIONS.)

4.17 p.m.

The Financial Secretary to the Treasury (Mr. J. Enoch Powell): I beg to move, in page 17, line 10, to leave out "received" and to insert "receivable."
This Amendment corrects a minor error. The payments in question will be allowed for the tax purposes of the company which makes them in the year in which they become due and not necessarily in the year in which they are made. Consequently, they should be charged to tax to the company which receives them in the year in which they are receivable, not necessarily that in which they are received.

Amendment agreed to.

Mr. Douglas Jay: I beg to move, in page 17, line 20, to leave out from "Kingdom" to the end of line 28.
The purpose of this Amendment is to ensure that an overseas trade corporation shall not be exempt from tax, unless it at least pays some tax in the country in which it is carrying on its trading operations. We understand that it is the Chancellor's purpose in the whole of this O.T.C. device to avoid discrimination as he calls, it, between a British company trading overseas and its foreign competitors.
Although we do not accept in full the whole of this plan, taking it for granted for the moment, I can see that there may be some case for arguing that if a United Kingdom firm trading overseas pays some Income Tax or Profits Tax, or whatever the tax arrangements may be in the country where it carries on trade, then it should be relieved of United Kingdom taxation in this specially far-reaching fashion.
But supposing there is no local tax levied, as, I believe, is the case in certain countries, then to exempt the overseas trade corporation from. British taxation

altogether is to put it in a fantastically favourable position vis-à-vis other British companies which may be exporting and carrying on overseas trade in various ways. It seems to me an extraordinary conclusion, if one sets out to try to put United Kingdom companies on a fair level with their competitors and, indeed, with other trading companies generally, to reach a point at which a certain minority of companies may be absolutely exempt from all tax, either in the country concerned or in the United Kingdom—unless, presumably, they remit dividends to shareholders here, in which case to that extent they would still pay United Kingdom tax.
I am informed that no tax is chargeable in, for instance, Kuwait and Bermuda, of a kind which would preclude this concession applying to a company which was an O.T.C. Therefore, it appears to be true that if there were a British O.T.C. operating in those two countries, it would pay virtually no tax. Perhaps the Financial Secretary will explain how this will work. I suppose that it will mean that if there were an oil company, or a branch of one of the great oil companies which had created an O.T.C. for the purpose and which had its management in the United Kingdom and which carried on trade in Kuwait—where, presumably, it would carry on some of its trading operations—that company would be almost completely exempt from taxation.
In the case of Bermuda, would it be possible for Mr. Noel Coward, for instance—and I use his name not to advertise, but just to take a realistic example—or for some other playwright to form a private company—and, unless the Financial Secretary contradicts me, I assume that there is nothing to prevent a private company as well as a public company becoming an overseas trade corporation—and forming an O.T.C. which would have its management and control in the United Kingdom and which would carry on the trade of selling plays or books or other literary products, perhaps the copyrights, whatever may be the most appropriate legal method, in Bermuda.
Supposing the whole of the shares of that company were held by a British playwright or an actor or somebody of that kind, who for the purpose of the law was resident not in the United Kingdom but in Bermuda, would we not then reach the conclusion that on the profits of those


operations, if there were profits, no tax would be paid, either Profits Tax or Income Tax, either by the company or by the shareholder, in either that country or the United Kingdom? I agree that that may be a rather extreme case.
This concession has the double and rather extraordinary effect that at one and the same time it gives a bonus to British investors to invest abroad and to foreign investors to invest in this country. There may be an argument for that, but it is a rather strange thing that this tax concession, at much expense to the Revenue, should produce those two mutually contradictory effects. This provision also leaves the Chancellor in the position of having to assume that a tax described as of a character and scope corresponding in all respects to Income Tax, that is to say, to our Income Tax, is charged in another country where in fact it is not charged. We are reaching a remarkable Alice-in-Wonderland position in tax law if we base the liability of a United Kingdom taxpayer on assuming that some tax exists in some other country where, in fact, we explicity recognise that it does not exist.
I am sure that the Financial Secretary is aware that Australia, when introducing a similar concession, specifically enjoined that it should not apply in a country where there is no tax similar to the British Income Tax or Profits Tax. That is our intention. My authority for saying that is the memorandum from the Board of Inland Revenue, which we have all read. Of course, we have now learned that the Chancellor has not as high an opinion of the Board of Inland Revenue as have some of us and that he is disposed to disregard its advice. Indeed, he seems to think that he is acting correctly as Chancellor when he says that he knows that the Board of Inland Revenue thought of it, but that he has decided to neglect what it said.
I do not know whether the Chancellor will go very far on those principles. Even if he does not pay attention to the advice of the Board of Inland Revenue about what he should do in matters of policy, I hope that he will at least be prepared to accept it as an authority on the actual legal practice in other countries, and I hope that the Financial Secretary will agree that a limitation on the concession is enforced in Australia.
If the Australians are able to effect a limitation of that kind, it must be practical and possible to administer it in our country. This seems to us another case where, as it stands, the Bill has been carried to extreme lengths to permit this class of company to pay virtually no tax and I hope that the Committee will feel that this is a case where we can reasonably and legitimately lay down some limitation.

Mr. Powell: The general object of this part of the Bill is to place companies resident in the United Kingdom in the same position as non-resident companies trading abroad in the same country. Of course, that includes companies resident in that foreign country where the trade in question is being carried on. That being the purpose of this part of the Bill, it would be quite impossible to pick and choose between one territory and another and to say that here is a territory which has an income tax—admittedly low, but an income tax—and, therefore, the provisions of Part IV should apply—

Mr. Jay: May I ask a question about the purpose? Is it really the Government's purpose—because we have had it stated both ways—to put a British company in, say, Kuwait on a level with a non-resident company, presumably a British company operating and registered there, or, as we originally thought, with some other foreign company, perhaps an Australian company, operating in the same business in Kuwait? If it is the latter, it will not be achieved by this concession.

Mr. Powell: The object is as I originally stated, and it is not consistent with that object that one should select one set of territories where one tax system exists and allow Part IV to operate there while refusing to allow it to operate in another kind of territory with a different tax system.
The right hon. Gentleman imagined a case of a private company whose business it is to sell or otherwise to exploit the works of a playwright. He will find that that possibility is excluded by subparagraph (ii) of subsection (3, b). The subsection to which the Amendment relates has the purpose of ensuring that all companies whose trading profits are exempt by this part of the Bill have a


permanent establishment somewhere so as to be a legitimate object of local taxation in the country concerned. It is not the object of this part of the Bill to create a situation in which a company escapes taxation anywhere, whatever the taxation may be in the various countries or places in which it operates. That is not the object for which the O.T.C. provisions were designed.
Paragraph (b), which the Amendment proposes to leave out, is, therefore, essential. It assumes that throughout the world there is a tax system identical with that in this country and it is a requirement that all the profits of a company obtaining exemption under Part IV should, on this hypothesis, be caught by tax. That is to say, they will, somewhere or other, have a permanent establishment which will render them liable to whatever local taxation there is.
4.30 p.m.
Paragraph (b) is, in fact, sufficient to achieve that purpose without paragraph (a). Paragraph (a) applies the actual test of whether a tax similar in character to Income Tax or Profits Tax is being paid. As the Committee will observe, that case is covered by the universal and theoretical test of paragraph (b), but paragraph (a) is a convenient way of finding out whether Income Tax or Profits Tax was, in fact, being paid in some overseas country. That simple and actual test will often suffice, and it is helpful to have it side by side in the Bill with the universal and theoretical test in paragraph (b).
To omit paragraph (a) would, therefore, be quite possible, although inconvenient; to omit paragraph (b) would be disastrous. If we omitted paragraph (b), it would mean, for example, that the pioneer relief given in some overseas countries would he frustrated, because it would mean that a company which, under the local law and for deliberate local purposes, was exempted from tax, would not benefit by Part IV of the Bill. It would be back again in the original position of bearing full United Kingdom taxation, because it would not be able to qualify as an overseas trading corporation.
The effect of leaving out paragraph (b) would be that it would frustrate the deliberate tax relief given in overseas countries; in other words, it would defeat

the one purpose which right hon. and hon. Gentlemen opposite have recognised as valid in this part of the Bill.

Mr. Jay: Might it not be possible, as the Australians appear to do, to give the pioneer relief, but so to frame the concession as to limit the relief in the way we propose?

Mr. Powell: We are not debating whether Part IV of the Bill ought to be restricted to giving pioneer relief, but whether this paragraph should stand. I am pointing out to the Committee that if this test is omitted, pioneer relief, amongst other things, will automatically be frustrated.
By the omission of this paragraph, we would bring in companies which I am sure nobody in the Committee would want to be exempt from tax. It is possible for a company to be carrying on trade in no country at all. It might, for example, be drilling for oil under the sea beyond the territorial limit. It may be carrying on whaling operations, whilst resident in this country and therefore taxable in this country, apart from Part IV of the Bill. It is precisely to ensure that companies are not in the position of carrying on all their operations in no country, while resident in the United Kingdom, and thus, by virtue of this part of the Bill, escape all taxation, that we must have the universal test in paragraph (b).
Therefore, because its omission would leave out companies which everybody wants to bring in and would bring in companies which everyone would like to be left out, I suggest that we must retain paragraph (b).

Mr. G. R. Mitchison: May I ask the hon. Gentleman one or two questions? I am intrigued by this possibility of a company having operations in the middle of the ocean. I suppose that the example of whaling would do, but even then one would have to bring in the products of whaling to land ultimately. I see that the Financial Secretary to the Treasury is shaking his head, and I understand from him that he knows of a company which carries on whaling and never brings any products to the land.

Mr. Powell: The company might be organised so that the bringing of the


products to land was the business of another company.

Mr. Mitchison: These fascinating possibilities have not been as fully developed in my mind as in the remarkably ingenious mind of the Parliamentary Secretary. I would ask him how does the Clause operate there, because there is no assumption that, in a place which is not a country outside the United Kingdom, there is any tax at all. Apparently, there appears to be an unfair discrimination between those who carry on their whaling operations or whatever they may be inside territorial waters and those who do it outside territorial waters. That is the first question which I should like to put to him, and I feel certain that the hon. Gentleman's ingenuity will provide an immediate answer.
The second question is a little different. A company is not to qualify as an overseas trading corporation unless, to put it shortly, all of its trading profits are chargeable to something similar to Income Tax or Profits Tax. Let us assume that the whole of the profits are chargeable to Profits Tax. I do not think—and here I stand to be corrected, if need be—that the standards for the assessment of Profits Tax and Income Tax are the same, and, therefore, the profits so chargeable might be different. What happens in that case? If the profits are, in fact, chargeable to anything like Profits Tax, then I suppose there is no assumption to be made about Income Tax at all. Perhaps the hon. Gentleman could elucidate that.

Mr. Eric Fletcher: Speaking for myself, I am more confused about this than I was before I heard the Financial Secretary's attempted explanation of it. While I do not want to delay the Committee, I think that in the interests of clarity we ought to know what this means before we pass from it.
I wish to refer to subsection (5), paragraphs (a) and (b), but before I do so, I should like to refer to what I thought were the very significant observations of my right hon. Friend the Member for Battersea, North (Mr. Jay), which I thought the Financial Secretary seemed to brush aside as if they did not matter. My right hon. Friend referred to the example of a company carrying on trade largely outside the United Kingdom, and he inquired what would be the position

of a private company which acquired the rights of Mr. Noel Coward's talent and so forth. I think that my right hon. Friend asked a very sensible and intelligent question, but what was the answer?
The Financial Secretary referred us to a paragraph which has no relation to the matter at all. It has to deal with ships and aircraft, and I am not sure that Mr. Noel Coward has any connection with ships and aircraft, though I quite understand that he may be thought to have some connection with copyright in literary, dramatic, musical or artistic works. How does that subsection affect the matter? Paragraph (b, ii) of subsection (5) merely deals with
payments in respect of copyright in literary, dramatic, musical or artistic works, the author of which is ordinarily resident in the United Kingdom.
That has nothing to do with the point which my right hon. Friend was raising. My right hon. Friend was saying suppose we had a gentleman—or a company enjoying the benefits of his talent and works—operating very largely outside the United Kingdom.

Mr. Powell: Non-resident?

Mr. Fletcher: Yes, non-resident.

Mr. Powell: They would not pay tax.

Mr. Fletcher: The Financial Secretary says they would not pay tax. I am not sure whether my right hon. Friend will think that a very satisfactory answer, but if so, I do not think it is the end of the matter. It certainly makes the position a little clearer. The Minister is now saying to my right hon. Friend that such a gentleman pays no tax.

Mr. Powell: At the moment.

Mr. Fletcher: May we take it that that is the intention of this part of the Bill, and that he should pay no tax?

Mr. Powell: That is the present position.

Mr. Fletcher: Is it intended that it should continue and that other people should be able, if they so desire, to take advantage of this part of the Bill, put themselves in a similar position and, therefore, pay no tax? I take it that it will make it easier for them to do so than is the case at present.
There is quite a serious problem here. The Minister is now saying that certain people can take advantage of the law as it stands to avoid paying tax. We want to know whether it is the effect or the intention of Part IV that artistes and others carrying on a similar kind of profession should be able to obtain greater benefits from the Income Tax laws than they enjoy at present. I think that that was the purport of my right hon. Friend's question.
I now revert to the principal object of the Amendment, namely, the elimination of paragraph (b). The Minister said that it would not matter if paragraph (a) were in the Bill or not, but that paragraph (b) was essential. If it does not matter about paragraph (a) I am at a loss to understand why it should be included. If the Minister is content to rely upon paragraph (b) why not rely upon it, and not have paragraph (a)? Either paragraph (a) is necessary or it is not.
Contrary to the Minister, I should have thought that paragraph (a) was essential, and that it would have been much better to rely upon it and to eliminate paragraph (b). One of the reasons why I think that is that paragraph (b) seems to be quite unintelligible. It says:
A company shall not qualify as an Overseas Trade Corporation unless"—
then come certain assumptions—
the profits arising from the whole of the trade carried on by the company would he chargeable in one or more such countries to tax of that character.
This is a very novel form of Parliamentary draftsmanship, as I am sure the Minister, who has made some study of phraseology, will admit. How, in an Act of Parliament, can one define an obligation or qualification which is based upon an assumption? I know of no precedent for it whatever.
Let us analyse the situation. First, what is the assumption? It is that in every country outside the United Kingdom there is a tax of a character and scope corresponding in all respects to Income Tax. Who will decide that? Other countries have different kinds of fiscal laws. It is not every country which thinks that the most sensible way of raising revenue is by way of Income Tax. Other countries have withholding tax and sales tax—all kinds of comic taxes not

known to this country. Some may well be of a scope not identical with our Income Tax, but in some respects similar. Who is to say whether the tax laws of a country such as Kuwait or Bahrein correspond to our Income Tax laws? There may be considerable argument about that.
Let us suppose that there is a doubt about it, and that it is arguable whether a given country, such as Kuwait, has a tax, corresponding to our Income Tax. The assumption made in paragraph (b) would not then hold good, and I take it that the Minister would then agree that the rest of the operative words of the paragraph would not apply. What would be the position then? In other words, what would be the effect upon whaling companies and similar organisations? Can the Minister tell us whether or not it is intended to disqualify companies from having the benefit of the overseas trade corporation provisions on such ambiguous grounds as these? If the Minister is right, and paragraph (b) is the one upon which he relies, would it not be more sensible to withdraw paragraph (a) and rewrite paragraph (b) in a form which is quite definite and intelligible? I believe that my right hon. Friend has raised a very sensible point, which I hope the Committee will press before we part with this part of the Clause.

Amendment negatived.

4.45 p.m.

Mr. Roy Jenkins: I beg to move, in page 17, line 31, at the end to add:
or in any European country which the Board of Trade, with the consent of the Treasury, may declare to be part of a European free trade area including the United Kingdom:
Provided that any such declaration shall be made in the form of a statutory instrument and shall be laid before Parliament.
This is a comparatively simple, but important, Amendment. It deals with subsection (6), which says:
A company shall not qualify as an Overseas Trade Corporation if it is carrying on a trade in the Republic of Ireland.
The Amendment seeks to extend the provisions of this subsection so that it will also apply to any European country which came to form part of the European Free Trade Area, if and when such a trade area is set up—although the declaration from


the Board of Trade to specify which countries should be included would be required, and it would have to be laid before Parliament in the form of a Statutory Instrument.
It seems clear that if and when a European Free Trade Area comes about it will be undesirable in many respects—and I should have thought that this would certainly be recognised by the Government and hon. Members opposite—for it to be possible for overseas trade corporations to operate within the Free Trade Area and to gain the benefits of Part IV of the Bill.
For instance, we are all aware that it is quite possible for a United Kingdom manufacturing company to hive off an export company which will enjoy the benefits of being an overseas trade corporation. If the European Free Trade Area were to come into being, without some such provisions as the Amendment provides it would seem possible for United Kingdom capital to be used—and perhaps United Kingdom manufacturing expertise or "know-how"—to set up a manufacturing company in Germany or Belgium, let us say, which would manufacture goods largely for export into the British market but which would have a separate, importing company to take over and do the actual importing and selling of goods in this country, so that the manufacturing company, set up with British capital and "know-how", operating under British auspices in Europe and able to enjoy a much more favourable tax position than if it were set up and manufacturing in this country, would not disqualify itself from the provisions of Part IV by trading in this country. This would be a most undesirable situation.
There are many powerful arguments in favour of our participating in a European Free Trade Area, but there are no arguments in favour of such participation providing incentives, by way of favourable tax concessions, for British capital to be used not in this country but in Europe for the manufacture of goods which may ultimately be exported into this country. There is a point of real danger here.
The whole of Part IV deals with extremely complicated matters, which lead us inevitably to put our remarks in the form of questions rather than assertions. I therefore do that in regard to the example which I have just quoted.
I should like the Economic Secretary, who, I trust, will apply himself extremely closely to this matter, to give a detailed explanation of the dangers which do, or do not, exist here, and to tell us whether this is a real danger. If he takes the view that a danger does not exist, that it is not necessary to make safeguards such as we propose, I hope that, alternatively, he will explain why it is necessary to make this special provision concerning the Republic of Ireland with which we are already, as it were, within a free trade area; and why it is not so necessary to make it with other countries which would be in a wider free trade area when this came to be set up. Therefore, believing this to be the real danger with which we have to deal, I should like the Economic Secretary to tell us what is the position.
I hope that he will not sweep this matter aside. In our debates yesterday we found a slightly alarming dichotomy in the attitude of the Government to some of the anti-avoidance provisions in this part of the Bill. I believe it was the Financial Secretary—he is not present at the moment—who was most eloquent on this point. Sometimes the Government say that this part of the Bill is hedged round with the most meticulous provisions to make sure that there is no abuse, and that they want to give this concession in such a way that there will be no avoidance and no evasion. At other times the Chancellor of the Exchequer—who is rapidly qualifying as one of the most reckless Chancellors we have ever had in this country—says, "This is a concession which I want to give as widely as possible. I want to benefit all shareholders of companies. I want to see British trade encouraged, and if it leads to dangers, that must be put up with. I am taking a clear view. I am a 'one hundred per center' on this and other issues."
This is rather an alarming difference. I hope that the Economic Secretary, speaking in the absence of both his right hon. Friend the Chancellor and his hon. Friend the Financial Secretary, will, in dealing with this Amendment, lean a little more towards the technique practised by the Financial Secretary and give a close and detailed explanation of the position regarding the real danger in this part of the Bill. I hope that he will tell us


whether, when a European Free Trade Area is set up, there will be a tax incentive to manufacturers, employing British capital and "know-how", to carry on, not here at home employing British labour, but elsewhere on the Continent of Europe employing non-British labour.

The Economic Secretary to the Treasury (Mr. Nigel Birch): The reason for the omission of the Republic of Ireland is that there is a special double taxation agreement with Southern Ireland in which companies trading there are not subject to Irish Income Tax. They are subject to a small corporation Profits Tax of 10 per cent. if they make more than £2,500. In view of this special agreement, which does not exist elsewhere, it was thought right to omit Ireland. We have been in consultation with the Government of Ireland who agree that this is the correct way to deal with the matter.

Mr. Roy Jenkins: Why is Ireland different, because Ireland excludes the United Kingdom resident companies operating in Ireland from the operation of Irish Income Tax? Why is there a difference of principle between Ireland and, shall we say, some other overseas territory which gives pioneer relief exempting a company entirely from local taxation, and the position of a United Kingdom resident company, say, in Bermuda, where, as we heard during the debate on a previous Amendment, Income Tax does not exist?

Mr. Birch: The main reason Ireland is different is because of this exclusive agreement. There may be certain places where no taxation is charged and where a special case may apply, but that is the general principle.
The main object of the Amendment is to exclude countries in the Free Trade Area from the benefit of Part IV of the Bill. Having listened to the hon. Member for Stechford (Mr. Roy Jenkins) I am still not altogether clear why the party opposite wish to make the Amendment. This provision is based on the idea of jurisdiction—that the taxation of a company should in the first instance be in the country where it operates and that the taxation in the country of residence or origin, as it were, comes in only when the profits are distributed. I do not

understand what would be the object of cutting out the Free Trade Area from that general principle. Risks mentioned by the hon. Gentleman would exist just as much anywhere else as in the Free Trade Area.

Mr. Jenkins: I think not. It would not be possible to manufacture goods in most parts of the world and import them duty free into this country, as would be possible from the Free Trade Area.

Mr. Birch: It would certainly be easier to import them from the Commonwealth at easier rates of duty.

Mr. Jenkins: But not duty-free.

Mr. Birch: That is certainly a point. But I think the real reason, the main reason, against accepting the Amendment is that it seems to me to be a highly hostile act, when we are trying to negotiate a Free Trade Area, to say that we will make other countries in the area pariahs, as it were, and not allow trading on the same terms in that area as in the rest of the world.
So far as the migration of companies is concerned, and the dangers which ma), ensue from that, we should be in a far worse position if the Free Trade Area did not come about because the inducement to companies to set up abroad in order to avoid United Kingdom tax would be far greater if the common market comes about with no Free Trade Area than if we had a free trade union with other countries.
I am glad that the hon. Gentleman is in favour of a Free Trade Area. It seems to me wrong to make a special distinction here. Of course companies manufacturing overseas in the Free Trade Area could not export directly to this country while trading as O.T.Cs. There would have to be elaborate arrangements with a third party which would be subject to taxation. I do not think there is any real danger here, and I think that it would be a retrograde step to take action such as this which could be considered only as something hostile to the whole conception.

Mr. Roy Jenkins: After listening to the Economic Secretary I am by no means entirely convinced. The right hon. Gentleman said that after listening to my speech he was not clear why we put down


the Amendment. My trouble is that after listening to his speech I am not clear why the Government introduced Part IV of the Bill. The right hon. Gentleman failed to explain most of the points. He told us the reason for the specific exclusion of Ireland was this special form of double taxation agreement. I do not know exactly the details of the double taxation agreement and perhaps the right hon. Gentleman does not either, but I do not think he made absolutely clear what was the difference in principle in the treatment of companies operating in Ireland under this double taxation agreement and companies operating in overseas countries where there are special concessions such as pioneer relief.
As to the position in Europe, I agree that if we had a common market without a Free Trade Area there would be a danger that we would have to set up companies within the wall of the Common Market if we were to compete within the Common Market. But what we all believe—and the Government do not seem to have done much about it in recent months—is that we should guard against the danger of extending the narrow Common Market into a wider Free Trade Area. The danger I was concerned with was a more extreme danger than that which the right hon. Gentleman talked about. I was not concerned with the position in which we would have to set up companies within the fence of the Common Market, in order to sell within the six countries on reasonably favourable terms.
I was concerned about the position in which, the Free Trade Area having come about, it might be advantageous for British manufacturers to set up special companies operating within Europe under

more favourable tax conditions in order to sell, not in Europe, but to a hived-off importing or exporting company—according to which way one looks at it—into the British home market.

5.0 p.m.

This seems to me a very undesirable situation. The Government believe in the Free Trade Area and we on this side of the Committee believe in the Free Trade Area, though recognising some of its dangers, but we want to minimise those dangers and certainly while the negotiations are being conducted, however dilatorily by the Government. We do not want to see developing the situation in which we actually carry through a tax provision which would give a direct incentive for British capital and "know-how" to be exported to Europe and used there to manufacture goods for the home market. Because I feel that this is a real danger and because I am unconvinced by the Economic Secretary's arguments I hope that my hon. Friends will carry the matter into the Division Lobby.

Mr. H. Wilson: Are we not to have a reply to my hon. Friend from the Economic Secretary?

Mr. Birch: I have already replied to that point. If, of course, a country in Europe has a more easy tax system than ours that of itself gives advantage to the manufacturers of that country whether British, French or whatever their nationality. However, I do not think that that of itself is a reason for taking away the O.T.C. concessions from the Free Trade Area. I think that that would be a most retrograde step.

Question put, That those words be there added:—

The Committee divided: Ayes 206, Noes 250.

Division No. 147.]
AYES
[5.2 p.m.


Ainsley, J. W.
Bottomley, Rt. Hon. A. G.
Coldrick, W.


Allaun, Frank (Salford, E.)
Bowden, H. W. (Leicester, S.W.)
Collick, P. H. (Birkenhead)


Allen, Arthur (Bosworth)
Bowen, E. R. (Cardigan)
Collins, V. J.(Shoreditch &amp; Finsbury)


Allen, Scholefield (Crewe)
Bowles, F. G.
Corbet, Mrs. Freda


Awbery, S. S.
Boyd, T. C.
Cove, W. G.


Bacon, Miss Alice
Brookway, A. F.
Craddock, George (Bradford, S.)


Balfour, A.
Brown, Rt. Hon. George (Belper)
Cronin, J. D.


Bellenger, Rt. Hon. F. J.
Brown, Thomas (Ince)
Grossman, R. H. S.


Bence, C. R. (Dunbartonshire, E.)
Burton, Miss F. E.
Cullen, Mrs. A.


Benn, Hn. Wedgwood (Bristol, S.E.)
Butler, Mrs. Joyce (Wood Green)
Darling, George (Hillsborough)


Benton, G.
Callaghan, L. J.
Davies, Rt. Hn. Clement(Montgomery)


Beswick, Frank
Carmichael, J.
Davies, Ernest (Enfield, E.)


Blackburn, F.
Champion, A. J.
Davies, Harold (Leek)


Blenkinsop, A.
Chapman, W. D.
Deer, G.


Blyton, W. R.
Chetwynd, G. R.
de Freitas, Geoffrey


Boardman, H.
Clunie, J.
Dodds, N. N.




Dugdale, Rt. Hn. John(W. Brmwch)
Lee, Miss Jennie (Cannock)
Shinwell, Rt. Hon. E.


Dye, S.
Lewis, Arthur
Short, E. W.


Edelman, M.
Lindgren, G. S.
Silverman, Julius (Aston)


Edwards, Rt. Hon. John (Brighouse)
Lipton, Marcus
Simmons, C. J. (Brierley Hill)


Edwards, Rt. Hon. Ness (Caerphilly)
Logan, D. G.
Skeffington, A. M.


Edwards, W.J. (Stepney)
MacColl, J. E.
Slater, Mrs. H. (Stoke, N.)


Evans, Albert (Islington, S.W.)
McInnes, J.
Slater, J. (Sedgefield)


Fernyhough, E.
McKay, John (Wallsend)
Snow, J. W.


Fienburgh, W.
MacMillan, M. K. (Western Isles)
Sorensen, R. W.


Forman, J. C.
MacPherson, Malcolm (Stirling)
Sparks, J, A.


Fraser, Thomas (Hamilton)
Mahon, Simon
Steele, T.


Gaitskell, Rt. Hon. H. T. N.
Mallalieu, E. L. (Brigg)
Stewart, Michael (Fulham)


Gibson, C. W.
Mann, Mrs. Jean
Stonehouse, John


Gordon Walker, Rt. Hon. P. C.
Marquand, Rt. Hon. H. A.
Stones, W. (Consett)


Greenwood, Anthony
Mellish, R. J.
Strachey, Rt. Hon. J.


Grey, C. F.
Messer, Sir F.
Strauss, Rt. Hon. George (Vauxhall)


Griffiths, David (Rother Valley)
Mlkardo, Ian
Summerskill, Rt. Hon. E.


Griffiths, Rt. Hon. James (Llanelly)
Mitchison, G. R.
Swingler, S. T.


Grimond, J.
Moody, A. S.
Sylvester, G. O.


Hale, Leslie
Moss, R.
Taylor, Bernard (Mansfield)


Hall, Rt. Hn. Glenvil (Colne Valley)
Moyle, A.
Thomas, Iorwerth (Rhondda, W.)


Hamilton, W. W.
Mulley, F. W.
Thomson, George (Dundee, E.)


Hannan, W.
Noel-Baker, Rt. Hon. P. (Derby, S.)
Thornton, E.


Harrison, J. (Nottingham, N.)
Oliver, G. H.
Tomney, F.


Hastings, S.
Oram, A. E.
Ungoed-Thomas, Sir Lynn


Hayman, F. H.
Orbach, M.
Usborne, H. C.


Healey, Denis
Oswald, T.
Viant, S. P.


Henderson, Rt. Hn. A. (Rwly Regis)
Owen, W. J.
Wade, D. W.


Hobson, C. R. (Keighley)
Padley, W. E.
Warbey, W. N.


Holmes, Horace
Palmer, A. M. F.
Watkins, T. E.


Holt, A. F.
Panned, Charles (Leeds, W.)
Wells, Percy (Faversham)


Houghton, Douglas
Pargiter, G. A.
West, D. G.


Howell, Charles (Perry Barr)
Parker, J,
Wheeldon, W. E.


Hoy, J. H.
Parkin, B. T.
White, Mrs. Eirene (E. Flint)


Hughes, Cledwyn (Anglesey)
Paton, John
White, Henry (Derbyshire, N.E.)


Hughes, Emrys (S. Ayrshire)
Pearson, A,
Wigg, George


Hughes, Hector (Aberdeen, N.)
Peart, T. F.
Wilkins, W. A.


Hunter, A. E.
Pentland, N.
Willey, Frederick


Hynd, H. (Accrington)
Popplewell, E.
Williams, Rev. Llywelyn (Ab'tillery)


Hynd, J. B. (Attercliffe)
Prentice, R. E.
Williams, Ronald (Wigan)


Irving, Sydney (Dart ford)
Price, J. T. (Westhoughton)
Williams, Rt. Hon. T. (Don Valley)


Isaacs, Rt. Hon. G. A.
Probert, A. R.
Williams, W. R. (Openshaw)


Janner, B.
Proctor, W. T.
Willis, Eustace (Edinburgh, E.)


Jay, Rt. Hon. D. P. T.
Pryde, D. J.
Wilson, Rt. Hon. Harold (Huyton)


Jeger, George (Goole)
Randall, H. E.
Winterbottom, Richard


Jenkins, Roy (Stechford)
Rankin, John
Woodburn, Rt. Hon. A.


Johnson, James (Rugby)
Redhead, E. C.
Woof, R. E.


Jones, Rt. Hon. A. Creech (Wakefield)
Reid, William
Yates, V. (Ladywood)


Jones, David (The Hartlepools)
Rhodes, H.
Younger, Rt. Hon. K.


Jones, Jack (Rotherham)
Robens, Rt. Hon. A.
Zilliacus, K.


Kenyon, C.
Roberts, Goronwy (Caernarvon)



Key, Rt. Hon. C. W.
Robinson, Kenneth (St. Pancras, N.)
TELLERS FOR THE AYES:


Ledger, R. J.
Ross, William
Mr. J. Taylor and Mr. G. H. R. Rogers.


Lee, Frederick (Newton)
Royle, C.





NOES


Agnew, Sir Peter
Bossom, Sir Alfred
Cunningham, Knox


Aitken, W. T.
Boyd-Carpenter, Rt. Hon. J. A.
Currie, G. B. H.


Allan, R. A. (Paddington, S.)
Braine, B. R.
Dance, J. C. G.


Amery, Julian (Preston, N.)
Bromley-Davenport, Lt.-Col. W. H.
Davidson, Viscountess


Amory, Rt. Hn. Heathcoat (Tiverton)
Brooman-White, R. C.
D'Avigdor-Goldsmid, Sir Henry


Arbuthnot, John
Browne, J. Nixon (Craigton)
Deedes, W. F.


Armstrong, C. W.
Bryan, P.
Digby, Simon Wingfield


Ashton, H.
Bullus, Wing Commander E. E.
Dodds-Parker, A. D.


Astor, Hon. J. J.
Burden, F. F. A.
Donaldson, Cmdr. C. E. McA.


Atkins, H. E.
Butler, Rt. Hn. R. A. (Saffron Walden)
Doughty, C. J. A.


Baldock, Lt.-Cmdr. J. M.
Campbell, Sir David
Drayson, G. B.


Baldwin, A. E.
Carr, Robert
du Cann, E. D. L.


Balniel, Lord
Cary, Sir Robert
Dugdale, Rt. Hn. Sir T. (Richmond)


Barber, Anthony
Channon, Sir Henry
Eden, J. B. (Bournemouth, West)


Barlow, Sir John
Chichester-Clark, R.
Elliott, W.W.(N'castle upon Tyne, N.)


Barter, John
Clarke, Brig. Terence (Portsmth, W.)
Emmet, Hon. Mrs. Evelyn


Baxter, Sir Beverley
Cole, Norman
Erroll, F. J.


Beamish, Maj Tufton
Conant, Maj. Sir Roger
Farey-Jones, F. W.


Bell, Philip (Bolton, E.)
Cooke, Robert
Fell, A.


Bell, Ronald (Bucks, S.)
Cooper, A. E.
Finlay, Graeme


Bennett, F. M. (Torquay)
Cooper-Key, E. M.
Fisher, Nigel


Bevins, J. R. (Toxteth)
Cordeaux, Lt.-Col. J. K.
Fletcher-Cooke, C.


Bidgood, J. C.
Corfield, Capt. F. V.
Foster, John


Birch, Rt. Hon. Nigel
Craddock, Beresford (Spelthorne)
Fraser, Sir Ian (M'cmbe &amp; Lonsdale)


Bishop, F. P.
Crowder, Sir John (Finchley)
Freeth, Denzil


Body, R. F.
Crowder, Petre (Ruislip—Northwood)
Galbraith, Hon. T. G. D.







Gammans, Lady
Kimball, M.
Raikes, Sir Victor


Garner-Evans, E. H.
Lagden, G. W.
Ramsden, J. E.


George, J. C. (Pollok)
Lambton, Viscount
Rawlinson, Peter


Gibson-Watt, D.
Lancaster, Col. C. G.
Redmayne, M.


Glover, D.
Langford-Holt, J. A.
Rees-Davies, W. R.


Godber, J. B.
Leavey, J. A.
Remnant, Hon. P.


Gomme-Duncan, Col. Sir Alan
Leburn, W. G.
Renton, D. L. M.


Goodhart, Philip
Legge-Bourke, Maj. E. A. H.
Ridsdale, J. E.


Cower, H. R.
Lindsay, Hon. James (Devon, N.)
Rippon, A. G. F.


Graham, Sir Fergus
Lindsay, Martin (Solihull)
Robinson, Sir Roland (Blackpool, S.)


Gram, W. (Woodside)
Lloyd, Maj. Sir Guy (Renfrew, E.)
Rodgers, John (Sevenoaks)


Green, A.
Low, Rt. Hon. A. R. W.
Roper, Sir Harold


Grosvenor, Lt.-Col. R. G.
Lucas, P. B. (Brentford &amp; Chiswick)
Ropner, Col. Sir Leonard


Gurden, Harold
Lucas-Tooth, Sir Hugh
Russell, R. S.


Hall, John (Wycombe)
McAdden, S. J.
Schofield, Lt.-Col. W.


Harris, Frederic (Croydon, N.W.)
Macdonald, Sir Peter
Scott-Miller, Cmdr. R.


Harris, Reader (Heston)
Mackeson, Brig. Sir Harry
Sharples, R. C.


Harrison, A. B. C. (Maldon)
Mackie, J. H. (Galloway)
Shepherd, William


Harrison, Col. J. H. (Eye)
McLaughlin, Mrs. P.
Simon, J. E. S. (Middlesbrough, W.)


Harvey, Sir Arthur Vere (Macclesfd)
Maclean, Fitzroy (Lancaster)
Smithers, Peter (Winchester)


Harvey, John (Walthamstow, E.)
McLean, Neil (Inverness)
Spearman, Sir Alexander


Hay, John
Macmillan, Maurice (Halifax)
Spens, Rt. Hn. Sir P. (Kens'gt'n, S.)


Heald, Rt. Hon. Sir Lionel
Macpherson, Niall (Dumfries)
Stanley, Capt. Hon. Richard


Heath, Rt. Hon. E. R. G.
Maddan, Martin
Stevens, Geoffrey


Henderson, John (Cathcart)
Maitland, Cdr. J. F. W. (Horncastle)
Steward, Harold (Stockport, S.)


Hesketh, R. F.
Maitland, Hon. Patrick (Lanark)
Steward, Sir William (Woolwich, W.)


Hicks-Beach, Maj. W. W.
Manningham-Buller, Rt. Hn. Sir R.
Storey, S.


Kill, Rt. Hon. Charles (Luton)
Markham, Major Sir Frank
Studholme, Sir Henry


Hill, Mrs. E. (Wythenshawe)
Marlowe, A. A. H.
Summers, Sir Spencer


Hill, John (S. Norfolk)
Marshall, Douglas
Sumner, W. D. M. (Orpington)


Hinchinbrooke, Viscount
Mathew, R.
Taylor, Sir Charles (Eastbourne)


Hirst, Geoffrey
Mawby, R. L.
Teeling, W.


Holland-Martin, C. J.
Maydon, Lt.-Comdr. S. L. C-
Temple, John M.


Hope, Lord John
Milligan, Rt. Hon. W. R.
Thomas, Leslie (Canterbury)


Hornby, R. P.
Molson, Rt. Hon. Hugh
Thompson, Kenneth (Walton)


Hornsby-Smith, Miss M. P.
Morrison, John (Salisbury)
Thompson, Lt.-Cdr. R. (Croydon, S.)


Horobin, Sir Ian
Mott-Radclyffe, Sir Charles
Thorneycroft, Rt. Hon. P.


Howard, Hon. Greville (St. Ives)
Nabarro, G. D. N.
Thornton-Kemsley, C. N.


Howard, John (Test)
Neave, Airey
Tilney, John (Wavertree)


Hudson, W. R. A. (Hull, N.)
Nicholls, Harmar
Turton, Rt. Hon. R. H.


Hughes Hallett, Vice-Admiral J.
Nicolson, N. (B'n'm'th, E. &amp; Chr'ch)
Tweedsmuir, Lady


Hughes-Young, M. H. C.
Oakshott, H. D.
Vane, W. M. F.


Hutchison, Sir Ian Clark(E'b'gh, W.)
Ormsby-Gore, Rt. Hon. W. D.
Vickers, Miss Joan


Hutchison, Sir James (Scotstoun)
Orr-Ewing, Charles Ian (Hendon, N.)
Wakefield, Edward (Derbyshire, W.)


Hutchison, Michael Clark (E'b'gh, S.)
Orr-Ewing, Sir Ian (Weston-S-Mare)
Wall, Major Patrick


Hylton-Foster, Rt. Hon. Sir Harry
Osborne, C.
Ward, Rt. Hon. G. R. (Worcester)


Iremonger, T. L.
Page, R. G.
Ward, Dame Irene (Tynemouth)


Irvine, Bryant Godman (Rye)
Panned, N. A. (Kirkdale)
Watkinson, Rt. Hon. Harold


Jenkins, Robert (Dulwich)
Partridge, E.
Webbe, Sir H.


Jennings, J. C. (Burton)
Peyton, J. W. W.
Whitelaw, W. S. I.


Johnson, Dr. Donald (Carlisle)
Pickthorn, K. W. M.
Williams, Paul (Sunderland, S.)


Johnson, Eric (Blackley)
pike, Miss Mervyn
Williams, R. Dudley (Exeter)


Johnson, Howard (Kemptown)
Pilkington, Capt. R. A.
Wood, Hon. R.


Joynson-Hicks, Hon. Sir Lancelot
Pitman, I. J.
Woollam, John Victor


Keegan, D.
Pitt, Miss E. M.
Yates, William (The Wrekin)



Pott, H. P.



Kerby, Capt. H. B.
Powell, J. Enoch
TELLERS FOR THE NOES:


Kerr, Sir Hamilton
Price, Henry (Lewisham, W.)
Mr. Wills and Legh.


Kershaw, J. A.
Profumo, J. D.

Motion made and Question proposed, That the Clause, as amended, stand part of the Bill.

Mr. Mitchison: This is the Clause which is going to save everything. It provides those stringent conditions which are to make impossible the tax avoidance which has been so freely prophesied by I think everyone who has studied this part of the Bill. Let us have a look at it. The importance of it, it seems to me, is that it is intended to do that which the Board of Inland Revenue thought impracticable and unworkable. While I agree that on questions of policy its opinion is not infallible, nor indeed always relevant, on

questions of administration we are bound to pay attention to its knowledge and experience of the practical side.
It is quite a long Clause. It starts by making a general exclusion of companies that carry on a trade in this country. That in itself, though by now the words are pretty definite in their meaning, has certainly led to a great deal of trouble in the past, and even now is not as clear as all that. We could have had no better instance than the little dispute which arose, I think it was yesterday, about whether a company buying and selling land is or is not carrying on a trade. That dispute reflected quite a deal of legal controversy on exactly that point.
Then we come to an exception which will depend on the meaning, among other things, of "a recognised market," and the Government are so confident that everyone attaches the same meaning to those words that they have not thought fit to include a definition. So far as I know, the words have never before occurred in any Statute, fiscal or otherwise. The nearest we ever got to them was a recognised Stock Exchange, and that is a bit different.
We come after that to the question of exporting companies. This was a matter that was again considered very carefully by the Board when it was putting in its observations to the Royal Commission. I think that the conditions laid down here reflect some of the comments which were made in those memoranda. But I remember, and the Committee will remember, that yesterday vigorous protests were made from the Government benches about not tying up businesses, not compelling people to carry on their trade in one way or another and not, in fact, interfering with the ordinary run of free business.
Look at subsection (2). Look at the conditions which are here imposed and which have the effect that if, in fact they are not strictly complied with, a company ceases to be an overseas trade corporation. I agree with the Government that if we are to have an overseas trade corporation at all we have to try to draw a line; but the Government go on to say, "We have drawn a line." They may have done, but my conclusion is a little different. If this is a line we are trying to draw, then a concession of this sort depends on such narrow distinctions that it is really indefensible in principle.
We shall not carry out the object we have in mind if this is the sort of distinction we have to draw. I would say that it is possible for a company so minded to comply with these conditions. It is, of course, a considerable interference with business in one form or another. I agree that it is possible to do it, but the distinction, fiscal, moral or any other between a company which does comply and a company which does not comply seems to me to be completely bogus.
I think that it is perfectly possible for a company to arrange to comply with many of these conditions and in fact to do things which, I am sure, are not within

the general intentions of this part of the Bill, at any rate as it has been explained to us. We could not have had a more remarkable instance of a completely inconsistent addition to this Clause as a whole than the one that we had yesterday when the Government accepted an Amendment which would allow a company trading abroad to sell in this country not merely the produce that it made or produced abroad but any commodity of the same kind. Any distinction that there may previously have been between a producing company and a merchant company disappeared the moment that that quite illogical concession was made.
5.15 p.m.
The fact that the concession was argued, let alone conceded, shows the extraordinary artificiality of the lines that are drawn in this Clause. Naturally a good many hon. Members opposite say, "Oh, well; we and our friends would like the concessions to be as large as possible; let us make a sieve so full of holes that anybody can get through them. Let us extend to every conceivable purpose the special concession that is to be given only in special circumstances to special companies." We have had a good deal of that.
Is not there another deduction to he drawn from all this? Is not the other deduction simply that this is the wrong way in which to try to give a special concession to companies trading overseas when we do it purely on the fiscal basis of it being what is here called an overseas trade corporation and refrain from doing it with regard to the purposes that that company is serving.
I had a good deal of sympathy with an Amendment moved yesterday from the benches opposite about the special case of some chartered companies. I am not sure, when we look at it, that it did not really boil down to a single company. It is no doubt true that there are companies registered and resident in this country which are carrying out projects of special value to parts of the Commonwealth in particular. We argued last year, and we shall argue again today, that a concession, having regard to that sort of purpose and that sort of project and that sort of enterprise, is thoroughly justified.
This proposal goes wildly beyond that. The line that is attempted to be drawn


here does not depend in any way on the character of the trade that is served, on its use to the Commonwealth or its use for any other special purpose that might commend itself to the Committee, but purely on the character of the business. How extraordinarily narrow it is. Look, for instance, at the subsection to which I was referring, about exporting. The first part says that the goods have to be sold on what are commonly called "free-on-board" terms, or perhaps others indicating delivery at a rather later stage.
Nothing whatever is to be done about insurance, commission and other charges by anyone but the seller. That is the ordinary procedure with a delivery of that kind; the purchasing company is not to provide service. That does restrict it to f.o.b. deliveries or to cost, insurance and freight deliveries at some later stage. In practice, the type of delivery that is carried out in many of these cases is a strange mixture that does not fall into the somewhat rigid categories here laid down.
I would not draw the conclusion that we ought to make no provision at all but would simply point out that it is not a good way of drawing the line if we have to depend on a dictation so rigid and so abstract. I find a great deal of support for that point of view in the Bill.
When I turn to the miscellaneous Clauses—to which I refer for purposes of illustration—I find in the special subsection the very remarkable provision that if the company has done anything by mistake or has been obliged to do it, and has not had any material advantage out of it, the Commissioners may disregard it. We may have to consider that provision when we come to it.
The need to insert a provision of that sort illustrates better than any words I can use the artificialities that are introduced into the Clause. My conclusion is not that the distinctions are not necessary or are too wide or too narrow. That is not what I am considering. It is that the lines on which those distinctions are drawn must be wrong, and they throw a light on the artificial character of the proposals in Part IV. If, instead of drawing the line in this way, it had been drawn in relation to the special relief provided for Dominion countries, or in

relation to the particular purpose of the company, or something of that sort, it would have been far easier to work. Here I rely on the Board of Inland Revenue's opinion. It would have been far easier for those concerned to understand and conform to than are these elaborate provisions.
We shall not oppose the Clause. It is obvious that if we are to have some provision of the wide kind indicated by the preceding Clause, we must have qualifications and disqualifications, and we must try to draw our line somewhere. The Clause illustrates that the purpose of Part IV is misconceived because we have to draw such a wholly artificial line if we are to make any sense out of it.
Before I sit down I cannot forbear teasing the Financial Secretary on his complete failure to answer the extremely difficult question that his own almost excessive ingenuity raised in connection with subsection (5). He devised out of the recesses of his mind the conception—it may be perfectly real—of a company which did not carry on a trade in any country because it carried it on in the middle of the sea. When I asked what we did about that the hon. Gentleman did not explain what the company was.

Mr. Powell: The hon. and learned Member for Kettering (Mr. Mitchison) will observe in paragraph (b) that the profits arising from the whole of the trade carried on by such a company would not be chargeable in any country and therefore the company would not qualify as an overseas trade corporation.

Mr. Mitchison: I am very glad we have an answer at last. We might perhaps have had it when the point was raised, but there it is. Does not it illustrate the fantastic character of this part of the Bill? Suppose a company which does a little bit of whaling, sometimes inside and sometimes outside territorial waters, or two companies, one of which fishes inside territorial waters and the other outside—[Interruption.] One of my hon. Friends points out that they might catch something even better and fruitier than fish. They might find oil. We all know what that means. It will depend upon territorial waters whether the company becomes an overseas trade corporation.
Curiously enough, the middle of the ocean is not overseas, but the territorial


waters on the other side are. That is as it may be. I take it only as an instance of the extreme artificiality of the line we have to draw. I suggest that a line so drawn is unworkable and opens the door to evasion, and consequently to the administrative difficulties that the Board foresaw. The need to draw it shows that there is something wrong in the character of the concession that is offered by the Bill. What is fundamentally wrong is that the concession has no regard to the purpose for which the company is operating. I include in that Commonwealth purposes.

Mr. Geoffrey Stevens: As I listened to the hon. and learned Member for Kettering (Mr. Mitchison), it seemed that he overlooked the undoubted fact that the overseas trade corporation is an entirely new conception in our taxation law and practice. In the circumstances, it must be somewhat complicated. I am less pessimistic than he. I prefer that the conditions of disqualification be reasonably fully set out. In any case, our taxation practice is based not only upon statute law but upon case law, which is derived from it.
Before very long, we shall be able to solve such problems as what is and what is not a recognised market to the satisfaction of the hon. and learned Member for Kettering and the learned profession which he represents, of which he is so distinguished an ornament, and which may benefit very greatly from the complexities of Clause 21, if, indeed, the Clause is as complex as the hon. and learned Gentleman suggests.
I have only one point to raise. I would say how much we welcome Part IV and, in broad terms, accept the disqualifications of Clause 21. As the hon. and learned Gentleman has said, the line has to be drawn somewhere, but I am puzzled about one particular bit of the line, indicated by subsection (3, a (i)). Banking is excluded from overseas trade corporation status. On the Second Reading of the Bill the Financial Secretary to the Treasury gave the Government's reasons. He said:
The activities of banking, finance and insurance are also excluded, because it would be difficult to say of any concern of that kind that its day-to-day operations can be separated from the activities of central control and management."—[OFFICIAL REPORT, 7th May, 1957; Vol. 569, c. 819.]

That may be true, but I see absolutely no reason why that should disqualify a bank from overseas trade corporation status.
5.30 p.m.
A great part of the problem of the balance of payments position of this country is eased by the overseas banking services provided by our banking institutions. To a large extent, they carry them out in overseas territories, not by subsidiary companies only, but by branches. It might well be advantageous to put them on the same basis as the financial institutions of the countries with whom they will be in competition. There is a little difficulty here. I agree that it is not so easy to think of suitable conditions in which all banking organisations could be brought in. I am not at all certain that the banks themselves in this country having overseas activities are entirely happy about the precise lines upon which they might be allowed to qualify. Therefore, I have no practical proposal to make at present for bringing banks within the framework of this Bill.
None the less, I think it important that the position of the banks should be considered. I should like the Financial Secretary to give a little further explanation on the Motion, That the Clause stand part of the Bill, of the consideration which the Government have given to the position of banks and indicate that they would be willing in the months ahead to consider the position again, so that if a good case could be made—as may well prove to be so—perhaps in a subsequent Finance Bill the banks could be brought within the ambit of Part IV.

Mr, Edward du Cann: While welcoming, like my hon. Friend the Member for Langstone (Mr. Stevens), the provisions of Part IV and accepting the disqualifications and the way in which they are drafted, none the less I wish to ask the Financial Secretary for some further clarification of subsection (3, a (11)) in relation to the ordinary commercial operations of pastoral and stock and station agencies in Australasia, as they are called.
This Clause deals with lending money. The point I wish to make is a relatively narrow one as to what "wholly or mainly" means. I had an Amendment on the Order Paper which, if it had been


called, might have clarified the matter, but I can explain the point quite shortly. These businesses consist largely of the following categories of work: firstly, the sale of wool, of land and of stock for auction and by private treaty on a commercial basis; secondly, the sale of agricultural merchandise of various kinds to their clients, machinery and other agricultural necessities—in particular to farmers in Australasia; and, thirdly, the operation of grazing properties.
Of those categories, by far the most important is the sale of livestock and the sale of wool and the sale of land. As the Committee will be aware, that is vital to Australasian economy and it is of vital importance to the British Commonwealth in the export trade. The Committee will be familiar with the amount of wool sold, in particular to the United States of America. The United Kingdom companies—there are five or six of them—behave with very great responsibility and have a high reputation in Australasia for the manner in which they carry out their operations.
One of the matters which is particularly highly regarded is the way in which they arrange orderly marketing of agricultural products and in that connection, as a customary part of their operations, they provide their clients with finance pending the sales of commodities in which they are interested. For instance, they might lend money to a farmer while the wool is growing on the back of his sheep. That is an example, but there are many other such activities. This is an ordinary matter of quite natural commercial practice.
I have looked at the accounts of a number of these companies and I have the accounts of one such company in front of me. When we look at the total income derived from these different activities and compare the activities of buying and selling on commission in the way I have described with the activities of lending to clients and the gross income derived from those two things, it is clear that the lending of money constitutes a very small part of the business, but when we look at the net figure when a large sum of money is involved, a rather different picture is shown.
It is not clear at the moment how the Inland Revenue will judge this matter, whether it will judge it on the basis of the gross figure, which I should have

thought the logical basis, or judge it on the basis of the net figure. Should it judge it on the basis of the net figure, it would seem quite unreasonable because that would mean that these companies would be disqualified from being considered overseas trade corporations, although in fact on the face of it, in logic and from the point of view of the layman, they would seem abundantly qualified.
That is the point I ask the Financial Secretary to give an answer to or to resolve in some way, but two other points arise out of this subsection. Firstly, in regard to the wording of the Clause it may be that I have slightly misunderstood it, but it seems that the long sentence comprises two different things, lending money on the one hand and providing capital for hire purchase operations on the other. I take it that those are two separate things and that one should not read the subsection as meaning lending money for the purpose of its provision for hire purchase purposes. I take it that entirely separate operations are concerned in that subsection.
The second additional point is this. I do not wish to enter upon a discussion of Clause 32 at the moment because I realise that would be out of order, but we find that subsection (2, b) of that Clause comprises the lending of money without security. In this case the question of whether or not the clients of the companies concerned give security for the loans they receive is not mentioned. I am told that in Australia in particular, and especially in the State of Victoria, if one asks for security one is thought to be quite mad. To ask for security is not done.
I wonder why there should be this distinction in the Clause. It might be that hon. Members may think Victoria is a very desirable place in which to live, but this is a matter of some importance to the companies concerned. In dealing with these matters this is a large part of their important business, which is vital to this country. I should be grateful if the Financial Secretary could say why the difference is made in the wording later and not here. I am quite satisfied with the way in which the Clause is drafted.

Mr. Donald Chapman: I wish to ask the Financial Secretary a question about the interpretation of subsection (5). He will be aware


that we put down some Amendments to this Clause which, in effect, would have stipulated that the companies must have a permanent establishment in the area in which they are trading in order to qualify as O.T.C.s.
Those Amendments have not been called, so we have to look at the interpretation of the subsection as it remains unamended. The question I want to ask is this. Subsection (5) says:
A company shall not qualify as an Overseas Trade Corporation unless—
(a) the profits arising from the whole of the trade carried on by the company are chargeable in a country or countries…to income tax…
That means, in other words, unless Income Tax would have been paid on its trade in the foreign country.
Suppose that a company in this country sells not by means of a permanent establishment in a foreign country but merely by means of an agent who is more or less a general broker and does not confine himself to selling the firm's goods, but the goods are nevertheless sold in such a way that Income Tax in that country will fall on the proceeds, is not the exporting company in some way brought within the terms of the Clause? It would be selling merely through an agent and undertaking little or no risk. However, because the profits on its wares would be subject to Income Tax in the foreign country as they passed through the hands of an agent, that company would be able to qualify as an O.T.C. and accumulate untaxed reserves in that foreign country which might presumably be used for starting up a business there or establishing its own sales outlet there.
The puzzle is what will happen where exporting companies are merely acting through agents. Will they have the benefit of the Clause? Will they be able to accumulate funds in the countries where they are merely selling? Where companies are undertaking no risks of any magnitude in the foreign market and meeting no real competition but are merely leaving it all to an agent, is it right that the Bill should be extended to cover them? These are problems which one foresees if the Clause is unamended.

Mr. Powell: My hon. Friend the Member for Langstone (Mr. Stevens) reminded the Committee that we are taking the

first, and necessarily experimental, step in a new departure in our tax law. Therefore, he will realise that such questions as he raised about the possibility of bringing banking in any form within the ambit of Part IV must be given further consideration. The main problem, as he recognised, is that it is extremely difficult to separate that part of the profits of a banking business which are made in this country by the central operations from those made overseas. That is at the heart of the difficulty about placing banking business in the same position as other businesses which qualify under Part IV. As I have said, this is the first stage, and we shall have to see what experience teaches us as we go on in its application.
With regard to the point raised by my hon. Friend the Member for Taunton (Mr. du Cann), I understand that the companies which he has particularly in mind have been in touch with the Inland Revenue which is examining the facts of the undertakings and their business. Therefore, all that I ought to say at the moment is that "consisting wholly or mainly" is intended to convey the general emphasis of the undertakings of the firm concerned. My hon. Friend also referred to Clause 32, but that is concerned with a different matter, not with the disqualification of a company but with whether part of its receipts rank as trading or investment income. I can confirm, as he said, that the two matters which are dealt with in sub-paragraph (ii) are separate and not cumulative.
5.45 p.m.
The hon. Member for Northfield (Mr. Chapman) spoke about an overseas trade corporation carrying on a merchant business, but carrying it on, as it were, indirectly and not directly. It must, of course, be entirely an overseas merchant business, and it must be one in which no profits are earned in this country. The other provisions of the Clause and other Clauses in Part IV are designed to produce that effect. That being so, what the subsection in question is designed to achieve is that no part of those profits—they are profits of the company and not of the agent; we are dealing only with the profits of the company—are earned in such circumstances that no local tax system bites upon them. That is why the Bill does not in any way have the effect


of absolving from both United Kingdom tax and local tax, whatever or wherever it is, any part of the profits of a company.
If there is a situation in which as a result of these provisions there would be no tax liability anywhere, here or in any other country, then the company would be disqualified by subsection (5). I think that the main problem which the hon. Member had in mind was concerned with-other parts of the Clause and other provisions of this Part of the Bill, those which ensure that no profits earned in this country shall rank for the exemption given by Part IV.

Mr. Gordon Walker: I am grateful to the hon. Gentleman for the care with which he has replied to the points raised. I had intended to speak before he rose. First, can he tell us what a "recognised market" is? I should have thought that "recognised" demands "by" after it. It must be recognised by someone. I hope that he will be able to deal with this point.
Subsection (2) deals with the necessity to sell exports at f.o.b. prices to an overseas subsidiary if it is to be an O.T.C. I presume from my reading of the Bill that any O.T.C. which broke these provisions by not selling at genuine f.o.b. prices would be disqualified as an O.T.C. Who decides that it should be disqualified? How long would it be disqualified? Would it have an appeal against disqualification?
These are important points, because subsection (2) has been inserted specially to satisfy foreign criticism, particularly about the terms of G.A.T.T., and if it is not clear how the provision is to be enforced there will be very considerable doubts in the minds of other countries which are members of G.A.T.T. We are inclined to think that this part of the Clause will be unenforceable. It is extremely important that there should be a very clear penalty on anyone who is caught. However, I think it would be extremely difficult to enforce in the general run of things. Our view is that all these f.o.b. provisions are eyewash put in to satisfy foreign critics of the Government. We do not wish to divide against the Clause, because it contains disqualifications which must be provided. The

f.o.b. part of it will arise again on Clause 28 where we can go into the matter at greater length.
One major point about the Clause to which I should like to draw the hon. Gentleman's attention is this. The Clause contains the disqualifications. I take it that any overseas trade corporation can disqualify itself deliberately by infringing any of these provisions. The disqualifications apply whether done deliberately or not. Therefore, any overseas trade corporation that found it convenient to stop being one just disqualifies itself, and then, presumably, requalifies itself later if it so wishes.
In other words, is it not true that by the provisions of Clause 21, which are designed to limit the concessions of this part, a company can, so to speak, pop in and out of the status of an overseas trade corporation as it wishes; that it can deliberately disqualify itself and then requalify itself? Say it does a little trading at home—it disqualifies itself by doing so, and it might be very convenient for it to do so. For some tax reason or other it then wants to requalify, so it stops that trading at home. Is not the effect of the Clause that companies can, if it is convenient for them for tax purposes, opt in and out?
How are we to guard against that? if that is the effect, does it not open up a rather wide door for people to dispose of their status as an overseas trade corporation, or disqualifying themselves as one? Does it not mean that they could really arrange their tax affairs more freely than could those companies in the United Kingdom that could not possibly qualify as overseas trade corporations? This would give special benefit to those who could qualify for that status, then disqualify themselves and later requalify. This seems to us to be a point of some importance, and I should like to hear the views of the Government on it.

Mr. Powell: Perhaps the Committee will excuse me if I do not at this stage deal with the question of a recognised market, since we shall in due course reach Amendments dealing with that.
The second point that the right hon. Member for Smethwick (Mr. Gordon Walker) put to me related to the matters set out in subsection (2)—if there is disqualification, how long does it last and


what right of appeal is there? In the first instance, of course, it is the business of the Inland Revenue to apply the tax law. If it appears to the Inland Revenue that the trading income of a company is not exempt, that the company does not qualify as an overseas trade corporation by reason of the disqualifications here set out, the Department will assess it for tax in this country as not being an overseas trade corporation—

Mr. Mitchison: These are very detailed provisions about the terms of particular contracts. How does the hon. Gentleman anticipate that, in the ordinary course of taxation practice, the Inland Revenue is to find out whether such and such a sale, in the case of a company which may carry on many sales in the year, was strictly f.o.b., without any services being rendered or charges incurred?

Mr. Powell: Of course, the Inland Revenue will have to be satisfied about the business as a whole and that the conditions in this part of the Bill are fulfilled. It is proposed to give the Department extensive powers to obtain the necessary information. The price charged is a matter which arises under Clause 28, and the existing powers of the Income Tax Acts are there applied to transactions such as one might here be concerned with. But the general procedure is clearly—

Mr. Mitchison: I apologise for troubling the hon. Gentleman again, but I know of no provision at present under which the Inland Revenue would be able to get this detailed information. Perhaps even now, or on some future occasion, the Financial Secretary would tell me about it. It would seem to involve disclosure of the particular contracts. Moreover, I do not understand how the Inland Revenue is to begin. It is given the accounts of a company, or whatever it is—and these are the terms of every single contract. As I understand it, if a company enters into a single contract otherwise than on strict f.o.b. terms, it is thereby disqualified for a period.

Mr. Powell: As we shall see when we come to Clause 28, the Inland Revenue already inquires into the prices at which transactions take place between companies, and inquires into the details of those transactions for tax purposes. There is no essential difference between

its satisfying itself on these matters and satisfying itself as to the starting point of the business which is carried on by a company claiming overseas trade corporation status.
As I have said, the procedure will be that if the Inland Revenue is not satisfied that the company has avoided these disqualifications its duty will be to assess the company to United Kingdom Income Tax. The normal appeal procedure will then follow—the appeal to the Commissioners, and, on points of law, appeal to the High Court. There is, therefore, the normal, impartial resort as between the taxpayer and the Inland Revenue in this case, as generally.
The disqualification, like the qualification, applies, in general—and detailed exceptions appear later in the part—for a year. Overseas trade corporation status, like the tax code on which it bites, is a matter of the tax year. It is a year to year matter, and it is therefore for the Inland Revenue to satisfy itself year by year that companies to which this status is accorded are not disqualified in any of the ways set out in the Bill.
The right hon. Gentleman raised the very important question of a company deliberately disqualifying itself, for tax avoidance purposes, in years when it was convenient for it not to be an overseas trade corporation. This is a matter which is germane to that discussed by the Committee yesterday, when my right hon. and learned Friend the Member for Kensington, South (Sir P. Spens) raised the question of an option—to be or not to be an overseas trade corporation.
It will quite clearly be necessary to take steps to prevent companies from being able to disqualify themselves for tax avoidance purposes, and to give a discretion to the Inland Revenue, such as it has in a good many circumstances already—as it already has, for example, under Clause 27—not to accord overseas trade corporation status to a company which is clearly hopping in and out of that status for tax avoidance purposes. It is my right hon. Friend's intention to take measures to that end in the Amendments which he will table on Report to meet, in part, the point raised yesterday by my right hon. and learned Friend.

Mr. Mitchison: Does that mean that what the Commissioners will have to consider is the question of the company's intentions in entering into contracts or making other arrangements which disqualify it for a period?

Mr. Powell: Yes.

Question put and agreed to.

Clause, as amended, ordered to stand part of the Bill.

Clause 22.—(EXEMPTION OF TRADING INCOME FROM INCOME TAX.)

Mr. Gordon Walker: I beg to move, in page 17, line 46, after "excluded", to insert:
to the extent stated in the Schedule (Extent of exclusion from charge to income tax of trading income arising to an Overseas Trade Corporation) to this Act".

The Temporary Chairman (Mr. George Thomas): I am advised that the New Schedule entitled

EXTENT OF EXCLUSION FROM CHARGE TO INCOME TAX OF TRADING INCOME ARISING TO AN OVERSEAS TRADE CORPORATION

should be discussed with this Amendment.

Mr. Gordon Walker: Yes, it would be very much more convenient to discuss that Schedule with this Amendment which, indeed, is just put down to bring in the Schedule.
This is a major Amendment from our point of view. Granted that the principle of the Bill is being accepted, this is the best we can do with it, and I hope that the Chancellor will pay serious attention to the arguments we use. So far, he has been a bit slap-happy and reckless, not to say frivolous, in his attitude to our Amendments He says that it does not matter what the Board of Inland Revenue says and it does not matter what the Royal Commission says. He says that it does not matter what the effect on our balance of payments is. All that matters is something called overseas trade, which sounds rather good—one can make a patriotic appeal about it—but which, apparently, really means that things now manufactured in this country will be manufactured abroad with the blessing and encouragement of the Government. That is really the essence of the Chancellor's argument so far. It is really not good enough for him to brush everything else aside and

work on a sort of instinct, giving no reasons at all for what he is doing, and certainly not troubling to controvert, if he can, the arguments we put forward.
6.0 p.m.
I will not go through the things we have to say about the general principle of the Bill, but it is clear that we are very doubtful about the whole project of setting up overseas trade corporations. We do not believe that the country commands the necessary resources to be diverted on such a scale to overseas investment at the moment, and we think that it will damage our balance of payments. Indeed, the Chancellor is in agreement with us about that; at any rate, in the short run—and we really do not know how long will be the run—the Government's proposal, he admits, will have a bad effect on our balance of payments. It is, moreover, clear that certain sorts of overseas trade will have a worse effect on our balance of payments than others.
Holding those views, we have put down the proposed new Schedule, the purposes of which is, first, to scale down the whole extent of this concession and, secondly, to discriminate between one sort of undertaking in overseas trade and another, partly for political reasons, in order to give preference to trade in the Commonwealth, and partly for economic reasons, because there are certain sorts of overseas trade which are less harmful to our balance of payments in the short run than other forms of overseas investment.
The principle we adopt is to differentiate by percentage of United Kingdom tax remitted and by reference to the area in which the trade is taking place. There are many examples in the world of these two methods being used, either separately or in conjunction, and it cannot, therefore, be argued that what we propose is unworkable. It may be argued that it is undesirable, but it cannot be argued that it is unworkable. The United States, for instance, does just this; it gives a percentage reduction against home tax and it discriminates according to the area in which the overseas trade is taking place.
American trade in the Western hemisphere, but not elsewhere, is given between 27 and 30 per cent. rebate against local United States tax. That is very much the same as we are proposing in our Amendment. Trade in the United


States possessions is given 100 per cent. remission of United States tax. The Americans. therefore, are doing just what we suggest we should do; they are discriminating by percentage rebate according to areas and the political importance of the trade for the United States or United States possessions.
We ourselves in our own legislation have drawn this distinction between Commonwealth and non-Commonwealth or extra-Commonwealth trade by the very same device of a percentage in the unilateral double taxation relief provided for in Section 348 of the Income Tax Act, 1952. If one is trading with a Commonwealth country with which we have not got a double taxation agreement and we therefore give unilateral double taxation relief, 75 per cent. of United Kingdom tax is remitted; whereas if one is trading in similar circumstances in a foreign country, not in the Commonwealth, the rebate for double taxation is only 50 per cent. It will be seen that we ourselves already, in our own existing legislation, make the distinction by variable percentage between Commonwealth and non-Commonwealth trade. New Zealand gives concessions only to overseas trade in other Commonwealth countries, not in foreign countries. Belgium does it by percentage, giving 20 per cent. relief. France gives special reliefs in the French Union.
There are plenty of examples of the method being used. Indeed, the way it is proposed to do it in the Bill really seems to be unique. When one looks at what other nations do, one does not find that any of them have picked that way. Practically all other countries which use this sort of device have, in fact, done it more or less along the lines which we propose in our new Schedule. We argue, therefore, with conviction, that our proposals are at least practicable and workable, and they will stand up.
The actual way in which we apply the principles is really very simple. Every overseas trade corporation would get a basic rate of 20 per cent. of its United Kingdom tax remitted to it for overseas trade, which happens to be the level that Belgium gives to her overseas trade corporations. We, however, add to that, namely that if the overseas trade corporation is trading in the Commonwealth it

shall have double the basic rate, namely a 40 per cent. remission of United Kingdom Income Tax. Then we give a bonus of 10 per cent. over and above that in both cases to all overseas trade corporations dealing in plantations, mines, oil wells, public utilities and similar things. In other words, for such overseas trade corporations as deal in extractive industries of one sort or another, the basic remission of Income Tax would be 30 per cent. and, if trading in the Commonwealth, 50 per cent.
The reason for the bonus is that undertakings engaged in the sort of operations referred to are the best from the point of view of our balance of payments. They are operations of a kind designed to produce imports into this country at as cheap a rate as possible. If one is going to do this at all, there is a good deal to be said for encouraging investment particularly in the sort of undertakings which are more likely to turn the terms of trade in our favour. If there is to be. as the Chancellor has admitted, at any rate an ill effect in the short run upon our balance of payments, it is better to try to arrange mattes so that that bad effect is as small as possible.

Notice taken that 40 Members were not present:

House counted, and, 40 Members being present:—

Mr. Gordon Walker: In our proposed Schedule, we recognise what has been argued from both sides of the Committee, that there is a special reason for giving full benefit to what we call pioneer companies, companies which are given pioneer relief in some Colony. We provide that, where there is pioneer relief of this sort, the British company concerned shall get the full extent of that relief should it be more than it would get otherwise under our proposed Schedule according to the type of trade it is conducting.
This proposal, therefore, is a workable one. It is very much more sensible than the Government's proposal. It is related to the true needs and interests of the nation and of the Commonwealth. It is extremely important, when discriminating in this way, to give a clear preference in favour of the Commonwealth, and this we do in our Schedule. The Government stubbornly and stoutly refused to do it, though, of course, they have today every


opportunity of doing so by accepting our Amendment.
If the Chancellor or the Economic Secretary advise the Committee to reject the Amendment, they will be asking the Committee to reject the whole principle of giving preference to the Commonwealth when dealing with this sort of thing. In our view this is a constructive, carefully thought-out proposal which is greatly preferable to the one at present in Part IV.

Mr. Bernard Braine: I would not have risen but for the observations made repeatedly throughout the debate yesterday that the Amendment and its attendant Schedule were to be the great feature of the debate and that those of us who were deeply attached to the cause of Commonwealth development should find ourselves in the Lobby with the right hon. Gentleman the Member for Smethwick (Mr. Gordon Walker).

Mr. Gordon Walker: The hon. Member is wrong. Our real proposal is in a new Clause. This method is merely assuming that it has to be done the way the Government want it. The new Clause should really attract the hon. Member, because it would give the entire help to the Commonwealth.

Mr. Braine: The right hon. Gentleman at least began his remarks by saying that this was a most important Amendment. If he now wishes to run away from that, I am in company with him, because while I am always ready to support any proposal which effectively discriminates in favour of Commonwealth interests, I do not think that this proposal would do so.
There may well be a case for giving selective reliefs. Certainly, throughout our discussions so far, the balance of payments has loomed large and I well see the motive behind the argument which has been advanced from the benches opposite. I should have thought, however, that if any particular trades were to be given selective reliefs, basing the case for doing so on the balance of payments argument, they should be those earning dollars and hard currency.
There is a fallacy, which perhaps the Committee has noticed, in the right hon. Gentleman's arguments. The provisions of the Amendment and the Schedule

apply only to overseas trade corporations—that is to say, to companies trading overseas and resident in the United Kingdom. If that be so, they cannot apply to the subsidiaries of British companies trading overseas. Yet the Schedule draws attention to the frustration of pioneer reliefs and the whole purpose of the proposal, I take it, is that that frusttration should, in part at least, be removed.

Mr. Gordon Walker: Wholly removed.

Mr. Braine: Agreed. But the point with which the right hon. Gentleman is not seized is that pioneer concessions are given in British Colonial Territories—at least, in the main, if not wholly—to companies registered abroad, which are wholly excluded from the Bill and which are not overseas trade corporations and are, therefore, quite outside the scope of these proposals. Thus, the Schedule is complete nonsense.
As I understand it, the proposal here is that benefits arising from overseas trade corporation status should be enjoyed on a discriminatory basis, the maximum benefit being 50 per cent. in the case of certain companies and certain kinds of trade. It is interesting to observe, therefore, that the party opposite wishes in respect of these companies to whittle down by half the concession which my right hon. Friend is willing to extend to them. That is an odd way of helping the Commonwealth.
6.15 p.m.
I ask the Committee, however, to observe something else in order to get the matter in perspective. The argument used by the right hon. Gentleman—it was implied throughout everything said by him and his hon. Friends yesterday—is that this proposal was designed to help the Commonwealth. I should point out that while such companies operating in foreign countries would get a 50 per cent. relief, other companies operating in the Commonwealth will get only a 40 per cent. relief or less. This is not only a discriminatory provision, but in some respect it discriminates against companies operating in the Commonwealth. Because of that, I consider the right hon. Gentleman's proposal mean, restrictive and cumbersome and I hope that the Committee will reject it.

Mr. Roy Jenkins: Which foreign countries would get 50 per cent.?

Mr. Braine: If the hon. Member looks at the new Schedule, he will see Class C:
Of the description in class A and carrying on a trade arising wholly or mainly out of the ownership or management of a foreign plantation, mine or oil well
The words
foreign plantation, mine or oil well
can only mean undertakings outside the Commonwealth.

Mr. Birch: The right hon. Member for Smethwick (Mr. Gordon Walker) was, I thought, glowing with the pride of authorship when he made his speech. It is certainly an ingenious proposal and it is a pleasure to see hon. Members opposite seeking to give some preference to the Commonwealth. That, of course, is a great change from the past. So many Socialist idols have fallen that they now find it necessary to lay their votive gifts at the feet of Lord Beaverbrook. At any rate, it is something that we can welcome.
The first point to be noted if one wants to benefit the Commonwealth is that the effect of accepting the Amendment would be to reduce the amount of relief granted to those companies. Secondly, it departs entirely from the principle both of the Royal Commission Report and of the Bill, that is, the principle of jurisdiction. In other words, the tax is levied in the country where the company is operating. The Amendment departs from that and it goes in for a large amount of discrimination—one might say discrimination with a vengeance. The right hon. Gentleman yesterday was very severe about discrimination. He said:
…we do not like the radical departure from the basic tax principle of this country, that there should not be discrimination between taxpayers."—[OFFICIAL REPORT, 26th June, 1957; Vol. 572, c. 310.]
The Amendment would bring about very considerable discrimination, and, in the nature of the case, that discrimination would be bound to be arbitrary. For example, the taxation on mining companies operating outside the Commonwealth would be higher than on those mining companies operating inside the Commonwealth, regardless of whether the metal that the mine produces was available in the Commonwealth. For

example, borax is not, I think, available in the Commonwealth. This provision would penalise the production of something which is of immense importance to this country.
We all want to help the Commonwealth, but we cannot invest in the Commonwealth unless we have money to invest, and we cannot get that money unless we can trade all over the world. We cannot live in the Commonwealth simply by taking in each other's washing. Therefore, discrimination of this sort would not only be against the principle of the Bill and against what was said in the Royal Commission's Report, but it would also diminish our capacity to help the Commonwealth by reducing our trade, our world wide balance of payments and our economic strength. It is on our economic strength that our ability to help the Commonwealth depends.

Mr. John Cronin: I am rather surprised at the Economic Secretary's reply. I agree that yesterday we on this side of the Committee said that we were against discrimination, and I agree that our Amendment produces discrimination, but, if the right hon. Gentleman will recollect, we were yesterday opposed to the whole principle of Part IV of the Bill, and our point is that if we have to accept Part IV then let the discrimination be in the most favourable way for the Commonwealth.
I should like to refer to three aspects of the Amendment, namely, the partial relief, the Commonwealth preference and the discrimination in favour of the extractive and agricultural industries. The Chancellor said yesterday that he was a hundred percenter. He showed that he had a bold and buccaneering spirit, and he was loudly cheered by his supporters. This is very encouraging. It has an almost schoolboyish charm about it, but, of course, this bold spirit is being shown at the expense of other people's money and at the expense of the right hon. Gentleman's own responsibilities. Therefore, it is not quite as commendable as it might at first seem to be.
I suggest to the Chancellor that when he is indulging in a completely unknown and unforeseeable type of fiscal measure he should proceed cautiously, and to proceed cautiously here is to make these reliefs partial. The right hon. Gentleman


must bear in mind that there will be regulations in other countries. It is quite likely that other countries will start making concessions to their overseas corporations, or their equivalent, and will therefore nullify the measures that we are taking today.
If, on the other hand, our measures are of a partial nature they are not likely to cause such a stir and such a strong reaction on the part of other countries. The Chancellor must bear in mind that in many countries where there are overseas trade corporations there is a strong feeling of nationalism. A sudden sweeping 100 per cent., such as is proposed in the Bill, might well give the impression that there is to be a wholesale invasion of those countries by British firms, and it might result in nationalistic disapproval.
As to the aspect of caution, from the purely budgetary point of view if we have these discriminatory percentages they can be varied from year to year in accordance with the conditions of world trade. All Chancellors over the past few years have been painfully familiar with the sudden and repeated variations which there can be in world trading conditions. Here, by means of the Amendment, we on this side of the Committee are providing a mechanism for varying discrimination so as to obtain the maximum advantage.
Obviously, there is a strong argument for giving preference to the Commonwealth because it occupies such a high place in our export trade, and the sterling area is in a constant state of capital shortage. If the Chancellor accepted the Amendment he would certainly ensure that capital would be exported to those places where it would produce the maximum advantage both to ourselves and to the sterling area. The Chancellor will also find that the constant problem that he has to face is that of the sterling balances. Our Amendment would ensure that such capital as is exported would tend to go into the sterling area rather than outside it, and would tend on the whole to ease that problem.
The Chancellor is already aware that Commonwealth trade is considerably weakened. There have been difficulties in our trade with Australia and New Zealand and a very big decrease in Commonwealth trade as opposed to

world trade as a whole. Therefore, here again our Amendment will have a very helpful effect. The right hon. Gentleman must also bear in mind that there is a definite psychological value in any Amendment which gives Commonwealth preference, because Commonwealth ties have been rather painfully weakened in the last year through unhappy events into which we will not now go in detail.
The other aspect of the Amendment is the preference for the extractive and agricultural industries. That is an obvious advantage in that these industries produce substances of which we have a great need in this country and of which there is a world shortage. Therefore. anything that tends to increase their production will be valuable. In addition, capital invested in extractive industries and agricultural production will cheapen those products. Thereby, there will he an improvement in our terms of trade and consequent benefit to our balance of payments. On the other hand, if the Chancellor's concessions are given to manufacturing, processing and distributing industries, there will be a tendency for those industries to sell their goods at considerably lower prices without any increased productivity, and that will have an opposite effect of making the terms of trade move against us. Again, there will be a tendency for the interests of British workers to be prejudiced if Part IV of the Bill is passed completely unamended.
Another matter which the Chancellor should particularly bear in mind is that there will be competition between various countries to obtain British capital. The result will be that the poorer countries, which will be unable to give tax concessions, will tend to fall away in the race and they will suffer. That, from an elementary point of view of humanity, anyone who has any familiarity with the standard of living in some of the Commonwealth and Colonial territories will certainly take very seriously in mind.
The Amendment, therefore, is something of a watershed. It is the dividing point. The Committee should be told quite clearly what the Chancellor's intentions are. Does he intend that Part IV should be of real value to our balance of payments position and to world trade generally, or is Part IV simply another concession to the shareholders and to the upper income groups, rather like his


Surtax concession? Here we on this side of the Committee are providing an Amendment which will have a logical effect and will make sure that the benefits of Part IV, such as they are, will be distributed in the manner most acceptable to our balance of payments and to our Commonwealth generally.
Yesterday the Chancellor made a statement which should receive a prize as the under-statement of the Session when he said that he was not shocked by shareholders benefiting. Is that the keynote to Part IV? Is it first and foremost a question of shareholders benefiting, or does the right hon. Gentleman want to produce a useful Measure that will produce ultimate prosperity for the country?

6.30 p.m.

Mr. Douglas Houghton: The Amendment under discussion relates to Clause 22, which is really the main operative Clause in Part IV of the Bill. First we had Clause 20 which gave us the definition of an overseas trade corporation. then Clause 21 gave us the disqualifications, and Clause 22 gives us the main Income Tax relief on overseas trade corporations.
I can understand the Treasury Bench feeling so weary of all this at this stage for it is a wearisome and complicated task. This is the kind of provision in the Finance Bill which can go through without adequate discussion because it is so complex. and it is so difficult to grasp that it might easily escape critical examination in this Committee. Yet under this Clause there are more millions of tax relief, I think I am right in saying, than in any other Clause in the Bill. That shows how important it is. I will not say that this is the Clause under which—

The Deputy-Chairman (Sir W. Anstruther-Gray): We are not discussing the Question that the Clause stand part we are discussing a specific Amendment.

Mr. Houghton: Yes, Sir William. I was coming to the Amendment in a moment. I thought I had better first say what the Clause did before I discussed what the Amendment tried to do with it. It probably takes a little longer but I will get there very soon. I was about to say that the Royal Commission on the Taxation of Profits and Income

devoted about twenty-four pages of its report to the matter with which this Clause deals and which our Amendment seeks to alter.
There is no doubt that the Royal Commission had great difficulty in making up its mind on this matter. If we re-read Chapter 24 of that report which deals with overseas profits, we appreciate that the arguments and the counter-arguments and the analyses of the taxation aspects of this matter gave the Royal Commission a good deal of trouble. It is a form of discrimination in our tax system which the House of Commons always looks at very critically. The Clause proposes one way of doing it, the Royal Commission examined an alternative as well as the method adopted in the Clause, and the Amendment suggests another way of doing the same thing.
What we are dealing with is a matter of opinion based on examination of the administration problems involved and the purposes of the tax relief which it is proposed to give. It depends on consideration of all those matters as to what conclusion we reach. In paragraph 666 the Royal Commission said that there were two main alternatives in the methods of granting exemption. One was to define a particular kind of profit as overseas profit and to exempt that in the hands of the taxpayer. The other was to define a particular kind of corporation as an overseas trader and to exempt all the profits or, perhaps, all the income and profits of that corporation.
There are difficulties about both, both as matters of policy and of administration. The Amendment suggests a third way of channelling this tax relief into overseas activities in the Commonwealth. The Economic Secretary has raised some objections to it. There are objections to be raised to almost anything one can think of in this context, and it is a matter of the balance of considerations which leads to the final conclusion.
The main point, however, is what are we trying to do? The Chancellor seems to be in no doubt about what he wants to do. He wants to give this relief to overseas trade activities on a very wide scale. It can be questioned whether the full extent of the Chancellor's purpose is necessary to bring about that incentive to the development of overseas trade, which is the only purpose of this tax relief.


There are few grounds for this relief by reference to considerations of equity.
Their economic purpose is really the mainspring of these proposals, and when the Royal Commission reached certain conclusions under the heading of "The Action Recommended" on page 206 of the report, it said:
Any scheme that is put into operation on these lines touches economic issues of great importance. We have tried to identify and analyse those issues in the earlier part of this Chapter. Such a scheme can only be justified in the long run by its contribution towards success in the handling of those issues. It is by this that it will have to be judged rather than by theoretical arguments of equity.
It is by reference to that criterion that we have to judge the Chancellor's proposals and the alternative to them in the Amendment. However doubtful we may feel as to the case for this relief in general, there is no doubt that we should feel more enthusiastic about it if the relief were being given to help overseas trade in the Commonwealth. That, at least, is something which has great sentimental interest as well as an economic and Commonwealth purpose, and is to be warmly welcomed.
The Chancellor's proposals, of course, go much further and really amount to a wide discrimination in favour of capital which is employed outside the United Kingdom and not necessarily within the Commonwealth. I know some people think that it is a bad principle to discriminate between the home and the export trade in any circumstances. There are also criticisms which can be levelled against proposals which compel firms in this country with overseas activities to go through complicated processes of hiving off their overseas trading activities in order to bring them within the scope of this relief, involving reorganisation, extensive professional advice, the creation of fresh companies and the like, none of which will increase the national income in this country by a single penny—though the Chancellor no doubt says in his mind that eventually he not only hopes he will, but feels confident that he will achieve this result.
There are administrative difficulties which can be raised against our Amendment. There are administrative difficulties which can be raised against the Clause and any alternative to the Clause. Indeed it is no secret now, it appears, that the Board of Inland Revenue addressed

themselves at great length to the Royal Commission on a great number of them. It is unfortunate that their evidence to the Royal Commission on matters covered by this Clause and by this Amendment have become available in such a queer fashion.
The Financial Secretary reminded me last night that documents prepared by the Inland Revenue and submitted to the Royal Commission were dealt with in a certain way by the Royal Commission, and copies of these documents were deposited in the British Museum, the National Library of Scotland and other libraries mentioned in paragraph 12 of the Final Report of the Royal Commission. No mention was made about the documents being in the Library of the House of Commons. I went to the Library a few moments ago and got hold of the last copy. Hon. Members who want to look at the memoranda will be at a disadvantage because there will be no copies in the Library. I do not think that is the proper way to do business.
I do not want to quote from any of the memoranda, because I think that in a way they were privileged documents. The Inland Revenue addressed itself not only to the difficulties of administration of the Clause and anything resembling our Amendment, but to the policy of the matter as well. I am not questioning its right to do so. It is fully entitled to say that those who are claiming relief under Clause 22 have failed to make out their case for it if that opinion is based on the evidence and information in the possession of the Department. I am not quarrelling with that.
However, I am not sure whether that view should be available for publication and quotation unless the consent of the Inland Revenue has been obtained and unless it is available for all to see and it is not merely confined to libraries or those hon. Members who may have visited our Library a little earlier than I did. All I would say on that is that some hon. Members are better equipped than others to deal with the problems arising on the Clause and our Amendment, and this is solely due to the memoranda being given a restricted circulation instead of their having the full benefit of publication.
Leaving that aside, I think we can go to the main bible of this and other


matters in Part IV, and that is the Report of the Royal Commission. Extended consideration was given to the subject. The headings in Chapter 24 are suggestive:
General observations.
The problem ascertained.
The case for exemption.
The case against exemption.
Further differences of view on the general argument.
We have not finished yet. Even when we have stated all the arguments for exemption and all the arguments against it, there is more to be said, and it was said under the heading:
Further differences of view on the general argument.
Other headings were:
Possible methods of exemption.
The charge on distributions.
The action recommended.
The Chancellor has adopted in the Clause the recommendation, if it can be called that, of the Royal Commission, though it says in coming down on that side of the fence—that is, discrimination in favour of an Overseas Trade Corporation rather than discrimination in favour of particular types of overseas income or profit—
We have decided to base our recommendation on a scheme of this kind because it is the one that would receive the largest measure of support among the signatories to this Report, of whom some would not be ready to recommend a more comprehensive measure. So the Royal Commission was hesitant and even divided right to the last in making its recommendation.
6.45 p.m.
We have to ask ourselves whether this very large tax relief is necessary or justified for the whole range of overseas trade corporations, written down by the disqualifications in the preceding Clause, in the present economic situation. On that, as we were saying yesterday, opinions will differ considerably. The narrow issue on the Amendment is whether those reliefs should be given to overseas trade activities in the Commonwealth and not generally, and even then there would be variations in the amount of the relief according to the type of company or activity undertaken.
All our reservations against the scheme as a whole come out once more on this

Clause. The Government have said that they will not accept the Amendment Presumably, in a few moments we shall pass to a discussion on the Clause, which is the real issue of Part IV. There is a large body of opinion in the country and among those who have been discussing these matters intelligently that it would have been better, as a beginning at all events, to give the relief a more restricted scope than that proposed in the Clause and to give greater emphasis to Commonwealth development in doing so.

Mr. Roy Jenkins: I wish to return to the points put before the Committee by the hon. Member for Essex, South-East (Mr. Braine) and the Economic Secretary.
We all followed the speech of the hon. Member for Essex, South-East very closely, and were grateful for it. It has been rare even to see a Government back bencher, and the privilege of both seeing and hearing one is so remarkable that we do not allow it to go by default. Apart from that, his words would have commanded attention on their own merit.
None the less, I thought there were one or two fallacies in the hon. Member's points. He reverted to a point on which he was very eloquent yesterday and said that the Schedule was nonsense because it tried to help pioneer companies without dealing with the case of a company which was not resident in this country. As I pointed out in an aside at the time, to the extent that the Schedule is nonsense in that respect, the Bill is equally nonsense. The Chancellor, with whom I am in full agreement on the point, dealt is completely with the issue yesterday. It is one which has a certain amount of force behind it, but it is untrue to say that no help is given to pioneer companies unless the particular point of view of the hon. Member is accepted.
With regard to another point, I think that the hon. Member has not read the Schedule. I had read it carefully, but I have read it even more carefully since his intervention. I also thought, even more surprisingly, that the Economic Secretary had not read it, because he implied that there were circumstances in which an extractive company outside the Commonwealth would be more favourably treated than any company within the Commonwealth could be.

Mr. Birch: It is exactly the opposite.

Mr. Jenkins: Might we again have what the right hon. Gentleman said on that point?

Mr. Birch: It is all in HANSARD.

Mr. Jenkins: HANSARD is not available at this stage. Perhaps we may have what the hon. Member for Essex, South-East said, and maybe it will work out.

Mr. Braine: The hon. Gentleman referred to something I said and I am glad that he has asked for clarification. I am greatly relieved to hear that the party opposite does not regard Colonial Territories as foreign. If the learned Gentleman looks at line 24 of the Schedule he will see the word "foreign" used there. Amendments and Schedules put before the Committee ought to be couched in language which is clear. Will the hon. Member confirm that the effects of this discrimination might be regarded by the Commonwealth Governments concerned as an attempt by the United Kingdom Government to interfere with, to dictate to or to shape their economies, and that this might invite retaliation? This is really a most dangerous proposal.

Mr. Roy Jenkins: In the course of explaining why he misunderstood the Schedule in the first place, the hon. Member has raised an entirely new matter. The use of the phrase
foreign plantation, mine or oil well
arises entirely because we were referring to language used in a previous Act in this respect.
Clearly, there are two sets of qualifications which we are seeking to apply. First, we are dividing companies into those which operate in the Commonwealth and those which do not. Secondly, we are dividing companies into those which operate plantations, mines or oil wells, broadly speaking, extractive companies, and those which are not extractive companies. On the whole, we are more in favour of Commonwealth countries than non-Commonwealth countries, and more in favour of extractive companies than non-extractive companies. Leaving aside pioneer relief, the type of company which will get the maximum relief, 50 per cent. under our Schedule, is one which fulfils both qualifications, being a Commonwealth company and an extractive company. One which is one or the other, a Commonwealth company but not an

extractive company, gets a slightly lower rate, 40 per cent.; one which is an extractive company, but not a Commonwealth company gets a still lower rate, 30 per cent.; one which is neither gets 20 per cent. I hope that we are all clear on that, including the Economic Secretary. This seems to be a sensible basis of discrimination.
A perfectly fair point made by the Economic Secretary and which must be met is that yesterday my right hon. Friend the Member for Smethwick (Mr. Gordon Walker) and other hon. Members on this side of the Committee made much of saying that discrimination in tax matters was of itself dangerous. The Economic Secretary thought that he could therefore say today that our discriminatory Schedule was in contradiction to what we had been saying yesterday. That is a point which must be met and which can be met.
We are confronted with Part IV of the Bill which is extremely discriminatory among companies which, roughly speaking, have an equivalent ability to pay. However, we are not framing our own scheme, but seeking to amend a series of Clauses put forward by the Government themselves and which are very discriminatory. The degree of discrimination does not depend on the number of classes of discrimination. It depends on the difference between those which are chosen and those which are not chosen.
Our Amendment reduces the difference between those chosen and those not chosen and also puts it on a basis which would be more helpful to our economy and to the purposes which we wish to serve. Nothing we said yesterday should be taken to mean that we believe that discrimination in the tax system can be avoided in all circumstances. What it can be taken to mean is that discrimination is in itself a bad thing and that before one does it one must be sure that there are strong economic arguments in favour of doing it. The Schedule does not cut across the general principles which we put forward yesterday.
There is something to be said for discrimination in favour of Commonwealth countries, even though under our arrangement the amount of relief permitted, even to Commonwealth countries, is not as great as that under the Chancellor's flat provision. One of the things about which


we are concerned is the channelling of capital into countries overseas, particularly into Commonwealth countries. Yesterday I made it clear that I doubted whether the Bill went too far in offering incentives for the export of capital. Leaving that point aside, it is surely the case, if we are dealing with the export of capital, that if we have discrimination in favour of Commonwealth countries, then, even if the absolute rate of relief is lower than under the Chancellor's proposals, the effect is that more favourable treatment is being given to Commonwealth countries than to non-Commonwealth countries, which means that under our arrangement such capital as is exported is more likely to go to Commonwealth rather than to other countries than would be the case under the Chancellor's flat rate arrangement.
With our other form of discrimination in favour of extractive industries as opposed to processing, manufacturing, and other categories of industries, we are concentrating upon those industries, the

development of which is more likely to improve than to damage our balance of payments and our trading position in the future.

Those are powerful reasons for accepting this carefully worked out Schedule. We are presented with a position in which the Chancellor is trying to do something, the objects of which we do not dislike, but by methods which we cannot accept. We are circumscribed at this stage to move within the framework which the Chancellor has laid down. We believe that this method would be less harmful to the Revenue and to the balance of payments and more beneficial to the Commonwealth and to the type of industries we want to encourage. I hope that my hon. Friends will carry this matter into the Division Lobby.

Question put, That those words be there inserted:—

The Committee divided: Ayes 186, Noes 239.

Division No. 148.]
AYES
[6.58 p.m.


Ainsley, J. W.
Fernyhough, E.
Kenyon, C.


Allaun, Frank (Salford, E.)
Flenburgh, W.
Key, Rt. Hon. C. W.


Allen, Arthur (Bosworth)
Fletcher, Eric
King, Dr. H. M.


Allen, Scholefield (Crewe)
Forman, J. C.
Ledger, R. J.


Awbery, S. S.
Fraser, Thomas (Hamilton)
Lee, Frederick (Newton)


Bacon, Miss Alice
Gaitskell, Rt. Hon. H. T. N.
Lee, Miss Jennie (Cannock)


Bellenger, Rt. Hon. F. J.
Gibson, C. W.
Lewis, Arthur


Benn, Hn. Wedgwood (Bristol, S.E.)
Gordon Walker, Rt. Hon. P. C.
Lindgren, G. S.


Benson, G.
Greenwood, Anthony
Lipton, Marcus


Beswick, Frank
Grey, C. F.
Logan, D. G.


Blackburn, F.
Griffiths, David (Rother Valley)
MacColl, J. E.


Blenkinsop, A.
Griffiths, Rt. Hon. James (Llanelly)
McInnes, J.


Blyton, W. R.
Hale, Leslie
McKay, John (Wallsend)


Boardman, H.
Hall, Rt. Hn. Glenvil (Colne Valley)
MacMillan, M. K. (Western Isles)


Bottomley, Rt. Hon. A. G.
Hamilton, W. W.
MacPherson, Malcolm (Stirling)


Bowden, H. W. (Leicester, S.W.)
Hannan, W.
Mahon, Simon


Bowles, F. G.
Hastings, S.
Mallalieu, E. L. (Brigg)


Boyd, T. C.
Hayman, F. H.
Mann, Mrs. Jean


Brockway, A. F.
Healey, Denis
Marquand, Rt. Hon. H. A.


Brown, Rt. Hon. George (Belper)
Henderson, Rt, Hn. A. (Rwly Regis)
Mellish, R. J.


Brown, Thomas (Ince)
Hobson, C. R. (Keighley)
Messer, Sir F.


Burton, Miss F. E.
Holmes, Horace
Mikardo, Ian


Callaghan, L. J.
Houghton, Douglas
Mitchison, G. R.


Champion, A. J.
Howell, Charles (Perry Barr)
Monslow, W.


Chapman, W. D.
Hughes, Cledwyn (Anglesey)
Moody, A. S.


Chetwynd, G, R.
Hughes, Emrys (S. Ayrshire)
Morris, Percy (Swansea, W.)


Clunie, J.
Hughes, Hector (Aberdeen, N.)
Moyle, A.


Coldrick, W.
Hunter, A. E.
Mulley, F. W.


Collick, P. H. (Birkenhead)
Hynd, H. (Accrington)
Noel-Baker, Rt. Hon. P. (Derby, S.)


Collins, V. J.(Shoreditch &amp; Finsbury)
Hynd, J. B. (Attercliffe)
Oliver, G. H.


Cove, W. G.
Irvine, A. J. (Edge Hill)
Oram, A. E.


Craddock, George (Bradford, S.)
Irving, Sydney (Dartford)
Orbach, M.


Cronin, J. D.
Isaacs, Rt. Hon. G. A.
Oswald, T.


Darling, George (Hillsborough)
Janner, B.
Owen, W. J.


Davies, Ernest (Enfield, E.)
Jay, Rt. Hon. D. P. T.
Padley, W. E.


Davies, Harold (Leek)
Jeger, Mrs. Lena(Holbn &amp; St. Pncs. S.)
Palmer, A. M. F.


de Freitas, Geoffrey
Jenkins, Roy (Stechford)
Pannell, Charles (Leeds, W.)


Delargy, H. J.
Johnson, James (Rugby)
Pargiter, G. A.


Dodds, N. N.
Jones, Rt. Hon. A. Creech(Wakefield)
Parker, J.


Dugdale, Rt. Hn. John (W. Brmwch)
Jones, David (The Hartlepools)
Parkin, B. T.


Edwards, Rt. Hon. John (Brighouse)
Jones, J. Idwal (Wrexham)
Paton, John


Evans, Albert (Islington, S.W,)
Jones, T. W. (Merioneth)
Pearson, A.




Peart, T. F.
Slater, Mrs. H. (Stoke, N.)
Wells, William (Walsall, N.)


Pentland, N.
Slater, J. (Sedgefield)
West, D. G


Popplewell, E,
Sorensen, R. W.
Wheeldon, W. E.


Prentice, R. E.
Soskice, Rt. Hon. Sir Frank
White, Mrs. Eirene (E. Flint)


Price, J. T. (Westhoughton)
Sparks, J. A.
White, Henry (Derbyshire, N.E.)


Price, Philips (Gloucestershire, W.)
Steele, T.
Wilcock, Group Capt. C. A. B.


Probert, A. R.
Stewart, Michael (Fulham)
Wilkins, W. A.


Proctor, W. T.
Stonehouse, John
Willey, Frederick


Pryde, D. J.
Stones, W. (Consett)
Williams, Rev. Llywelyn (Ab'tillery)


Randall, H. E.
Strachey, Rt. Hon. J.
Williams, Ronald (Wigan)


Rankin, John
Strauss, Rt. Hon. George (Vauxhall)
Williams, Rt. Hon. T. (Don Valley)


Redhead, E. C.
Swingler, S. T.
Williams, W. R. (Openshaw)


Rhodes, H.
Sylvester, G. O.
Willis, Eustace (Edinburgh, E.)


Roberts, Goronwy (Caernarvon)
Taylor, John (West Lothian)
Wilson. Rt. Hon. Harold (Huyton)


Robinson, Kenneth(St. Pancras, N.)
Thomson, George (Dundee, E.)
Winterbottom, Richard


Rogers, George (Kensington, N.)
Thornton, E.
Woof, R. E.


Ross, William
Tomney, F.
Yates, Victor (Ladywood)


Royle, C.
Ungoed-Thomas, Sir Lynn
Younger, Rt. Hon. K.


Shinwell, Rt. Hon. E.
Viant, S. P.



Simmons, C. J. (Brierley Hill)
Warbey, W. N.
TELLERS FOR THE AYES:


Skeffington. A. M.
Wells, Percy (Faversham)
Mr. Short and Mr. Deer.




NOES


Agnew, Sir Peter
Fell, A.
Johnson, Dr. Donald (Carlisle)


Aitken, W. T.
Finlay, Graeme
Johnson, Eric (Blackley)


Allan, R. A. (Paddington, S.)
Fisher, Nigel
Johnson, Howard (Kemptown)


Amery, Julian (Preston, N.)
Fletcher-Cooke, C.
Joynson-Hicks, Hon. Sir Lancelot


Arbuthnot, John
Foster, John
Keegan, D.


Armstrong, C. W.
Fraser, Sir Ian (M'cmbe &amp; Lonsdale)
Kerby, Capt. H. B.


Ashton, H.
Freeth, Denzil
Kerr, Sir Hamilton


Atkins, H. E.
Gammans, Lady
Kershaw, J. A.


Baldock, Lt.-Cmdr. J. M.
Garner-Evans, E. H.
Kimball, M.


Baldwin, A. E.
George, J. C. (Pollok)
Lagden, G. W.


Barlow, Sir John
Glover, D.
Lambton, Viscount


Barter, John
Godber, J. B.
Lancaster, Col. C. G.


Baxter, Sir Beverley
Gomme-Duncan, Col. Sir Alan
Leather, E. H. C.


Beamish, Maj. Tufton
Goodhart, Philip
Leavey, J. A.


Bell, Philip (Bolton, E.)
Gower, H. R.
Legge-Bourke, Maj. E. A. H.


Bell, Ronald (Bucks, S.)
Graham, Sir Fergus
Legh, Hon. Peter (Petersfield)


Bevins, J. R. (Toxteth)
Grant, W. (Woodside)
Lindsay, Hon. James (Devon, N.)


Bidgood, J. C.
Grant-Ferris, Wg Cdr. R.(Nantwich)
Lindsay, Martin (Solihull)


Biggs-Davison, J. A.
Green, A.
Linstead, sir H. N.


Birch, Rt. Hon. Nigel
Grimond, J.
Lloyd, Maj. Sir Guy (Renfrew, E.)


Bishop, F. P.
Grosvenor, Lt.-Col. R. G.
Low, Rt. Hon. A. R. W.


Body, R. F.
Gurden, Harold
Lucas, P. B. (Brentford &amp; Chiswick)


Bossom, Sir Alfred
Hall, John (Wycombe)
Lucas-Tooth, Sir Hugh


Bowen, E. R. (Cardigan)
Harris, Frederic (Croydon, N.W.)
McAdden, S. J.


Braine, B. R.
Harris, Reader (Heston)
Macdonald, Sir Peter


Brooman-White, R. C.
Harrison, Col. J. H. (Eye)
Mackeson, Brig, Sir Harry


Bryan, P.
Harvey, Sir Arthur Vere (Macclesfd)
Mackie, J. H. (Galloway)


Bullus, Wing Commander E. E.
Harvey, John (Walthamstow, E.)
McLaughlin, Mrs. P.


Burden, F. F. A.
Heald, Rt. Hon. Sir Lionel
Maclean, Fitzroy (Lancaster)


Butler. Rt. Hn. R. A.(Saffron Walden)
Heath, Rt. Hon. E. R. G.
McLean, Neil (Inverness)


Carr, Robert
Henderson, John (Cathcart)
Macleod, Rt. Hn. Iain (Enfield, W.)


Cary, Sir Robert
Henderson-Stewart, Sir James
Macmillan, Rt. Hn. Harold(Bromley)


Channon, sir Henry
Hesketh, R. F.
Macmillan, Maurice (Halifax)


Chichester-Clark, R.
Hicks-Beach, Maj. W. W.
Macpherson, Niall (Dumfries)


Clarke, Brig. Terence (Portsmth, W.)
Hill, Rt. Hon. Charles (Luton)
Maddan, Martin


Cole, Norman
Hill, Mrs. E. (Wythenshawe)
Maitland, Cdr. J. F. W. (Horncastle)


Cooke, Robert
Hill, John (S. Norfolk)
Maitland, Hon. Patrick (Lanark)


Cooper, A. E.
Hinchingbrooke, Viscount
Manningham-Buller, Rt. Hn. Sir R.


Cooper-Key, E. M.
Hirst, Geoffrey
Markham, Major Sir Frank


Cordeaux, Lt.-Col. J. K.
Holland-Martin, C. J.
Marlowe, A. A. H.


Corfield, Capt. F. V.
Holt, A. F.
Marshall, Douglas


Craddock, Beresford (Spelthorne)
Hope, Lord John
Mathew, R.


Crowder, Sir John (Finchley)
Hornby, R. P.
Mawby, R. L.


Crowder, Petre (Ruislip—Northwood)
Hornsby-Smith, Miss M. P.
Maydon, Lt.-Comdr. S. L. C.


Cunningham, Knox
Horobin, Sir Ian
Milligan, Rt. Hon. W. R.


Currie, G. B. H.
Howard, Hon. Greville (St. Ives)
Morrison, John (Salisbury)


Dance, J. C. G.
Howard, John (Test)
Mott-Radclyffe, Sir Charles


Davidson, Viscountess
Hudson, W. R. A. (Hull, N.)
Nabarro, G. D. N.


D'Avigdor-Goldsmid, Sir Henry
Hughes Hallett, Vice-Admiral J.
Neave, Airey


Deedes, W. F.
Hughes-Young, M. H. C.
Nicolson, N.(B'n'm'th, E. A Chr'ch)


Dodds-Parker, A. D.
Hurd, A. R.
Orr-Ewing, Charles Ian(Hendon, N.)


Doughty, C. J. A.
Hutchison, Sir Ian Clark(E'b'gh, W.)
Orr-Ewing, Sir Ian (Weston-S-Mare)


Drayson, G. B.
Hutchison, Sir James (Scotstoun)
Osborne, C.


duCann, E. D. L.
Hutchison, Michael Clark (E'b'gh, S.)
Page, R. G.


Dugdale, Rt. Hn. Sir T. (Richmond)
Hylton-Foster, Rt. Hon. Sir Harry
Pannell, N. A. (Kirkdale)


Eden, J. B. (Bournemouth, West)
Iremonger, T. L.
Partridge, E.


Elliott, R. W.(N'castle uponTyne, N.)
Irvine, Bryant Godman (Rye)
Peyton, J. W. W.


Erroll, F. J.
Jenkins, Robert (Dulwich)
Pickthorn, K. W. M.


Farey-Jones, F. W.
Jennings, J. C. (Burton)








Pike, Miss Mervyn
Sharples, R. C.
Tilney, John (Wavertree)


Pilkington, Capt. R. A.
Shepherd, William
Turner, H. F. L.


Pitman, I. J.
Simon, J. E. S. (Middlesbrough, W.)
Turton, Rt. Hon. R. H.


Pitt, Miss E. M.
Smithers, Peter (Winchester)
Tweedsmuir, Lady


Pott, H. P.
Spearman, Sir Alexander
Vane, W. M. F.


Powell, J. Enoch
Spence, H. R. (Aberdeen, W.)
Vickers, Miss Joan


Price, Henry (Lewisham, W.)
Spens, Rt. Hn. Sir P. (Kens'gt'n, S.)
Wade, D. W.


Raikes, Sir Victor
Stanley, Capt. Hon. Richard
Wakefield, Edward (Derbyshire, W.)


Ramsden, J. E.
Stevens, Geoffrey
Wall, Major Patrick


Rawlinson, Peter
Steward, Harold (Stockport, S.)
Ward, Rt. Hon. G. R. (Worcester)


Redmayne, M.
Storey, S.
Ward, Dame Irene (Tynemouth)


Rees-Davies, w. R.
Studholme, Sir Henry
Watkinson, Rt. Hon. Harold


Remnant, Hon. P.
Summers, Sir Spencer
Webbe, Sir H.


Renton, D. L. M.
Sumner, W. D. M. (Orpington)
Whitelaw, W. S. I.


Rippon, A. G. F.
Taylor, Sir Charles (Eastbourne)
Williams, Paul (Sunderland, S.)


Robinson, Sir Roland(Blackpool, S.)
Teeling, W.
Wills, G. (Bridgwater)


Rodgers, John (Sevenoaks)
Temple, John M.
Wood, Hon. R.


Roper, sir Harold
Thomas, Leslie (Canterbury)
Woollam, John Victor


Ropner, Col. Sir Leonard
Thompson, Kenneth (Walton)
Yates, William (The Wrekin)


Russell, R. S.
Thompson, Lt.-Cdr. R.(Croydon, S.)



Schofield, Lt.-Col. W.
Thorneycroft, Rt. Hon. P.
TELLERS FOR THE NOES:


Scott-Miller, Cmdr. R.
Thornton-Kemsley, C. N.
Mr. Oakshott and Mr. Barber.

Motion made, and Question proposed, That the Clause stand part of the Bill.

Mr. Houghton: The Committee will be glad to know that most of what I have to say in the debate on the Question, "That the Clause stand part of the Bill", I contrived to say in my speech on the last Amendment. This Clause exempts the trading income of an overseas trade corporation from Income Tax. It does not exempt its investment income, and it prohibits the setting off of trading losses against investment income. It also provides that, notwithstanding the tax relief given in the provisions of this part of the Bill, companies making distributions of profits must deduct Income Tax at the standard rate.
We do not complain about the latter provision. We do not complain about the prohibition against the setting off of trading losses against investment income, nor about the exclusion of investment income itself from the concession. But the main provision of the Clause is to exempt from Income Tax the trading income of those companies which qualify under the Bill for status as overseas trade corporations.
This is the biggest "give away" in the Bill. I must be careful in using that phrase, because the Chancellor objects to people saying that he is giving away money when he relieves people of taxation. He prefers to put it that he is allowing the taxpayer to retain more of his own income by the tax relief given. The right hon. Gentleman can have it how he likes, but the fact is that this is a very substantial tax relief indeed, and, in the context of the Budget as a whole, represents approximately one-quarter of

the £100 million tax reliefs given. Therefore, we are discussing a Clause of no small importance. In fact, the whole issue of Part IV of the Bill centres upon the tax relief given and the way of giving it.
I suppose the first question to ask is whether the tax relief should be given at all. Then, if the answer is "Yes", we consider what is the most appropriate way of giving it. If I were to utilise all the information at my disposal against the principle of the Clause I should have to quote from the memoranda, which I have said I will try not to do. After hearing the evidence of the Board of Inland Revenue and of many other people in trade and in the professions, of economists and others, the Royal Commission, with some hesitation and division of opinion among its members, which seems obvious, came down in favour of the method of giving relief which the Chancellor has adopted.
I cannot say that the alternative which the Commission examined would have been freer of administrative complications, although I think that it would have enabled the Chancellor to be a little more pointed in his discriminatory policy. The Committee will remember that the two alternatives were, first, to define the kind of income from overseas activities which should be exempted and, secondly, to exempt all income of a particular type of corporation. The former would be highly selective; it would involve a judgment of the economic value of particular activities and discrimination as between one form of trade and another.
On that basis I should say that the trading activities of the Sao Paulo Company of Brazil—which, we understand, is merely a glorified estate agency or


property-owning company—would not be high on the list of the Chancellor's priorities if he were looking at the first of the alternatives, namely, to exempt particular kinds of profit from overseas activities. So the Chancellor has rejected that alternative. The Royal Commission felt that there were great difficulties about it and preferred the method which the Chancellor has now adopted.
The general economic arguments have been canvassed pretty fully and there is little that one can add to them, other than to go on asking questions and providing the best possible answers upon all the available evidence. The big question is: Does the economy of the country need this tax concession? Will it benefit our balance of payments in the manner anticipated? Is it essential to encourage capital investment overseas, at a time when restraints are still put upon capital investment at home? These are all factors which we have to weigh in our minds.
Britain cannot earn her living wholly or even mainly from profits earned overseas; we have still to do a great deal here to earn our living, and that can be done only if our industries at home are modernised, re-equipped and put into the sort of shape which will enable them to compete in the markets of the world. There are growing fears that some sections, at least, of British industry will certainly have to modernise themselves and make themselves more efficient if they are to go into the European Free Trade Area with confidence that they will be able to maintain their position against competition from other European countries within that Free Trade Area. Before long some industries may regret the fact that they have not invested more of their profits in capital development.
7.15 p.m.
We have to hold the balance between the needs of overseas investment and the need for investment at home. The Chancellor himself will recall his regrets at not being able to restore investment allowances over the whole range of home investment, and at having to restrict that additional incentive to investment to a highly particular type of industry.
In the course of the debate much has been said by way of questioning the doc

trine that this tax relief is necessary to enable us to undertake overseas trade activities in a bigger and bolder way, and to earn more of the national income through overseas trade activities. There are possible dangers, some of which were referred to by the Royal Commission itself. My hon. Friend the Member for Loughborough (Mr. Cronin) alluded indirectly to one of them, namely, the fact that when overseas territories knew what tax relief was being given in Britain to these overseas trade corporations they might feel that they could impose additional taxation upon them locally, and that we should therefore be transferring the benefit from the overseas trade corporations to the Exchequers of the areas in which they were operating. Those are possible dangers, which may mean that the overseas trade corporations will finish up little or no better than before, although the Chancellor has forgone very considerable revenue here in order to meet what he believes to be their needs.
Our reservations upon the Clause must therefore express themselves in the traditional way. The major criticism of the method adopted by the Chancellor is that it will give this relief to overseas trade corporations who are already making big profits and doing very well, and who do not need this tax incentive or benefit to further their operations or to increase the scope of their activities.
The Clause now stands before us for final judgment. When we consider the tax reliefs given here, without a convincing case having been made out for them and given in a highly concentrated form, mostly to those in the higher income brackets, and relate them to the need for tax reliefs generally at home, the Bill appears to be a very unbalanced one in the matter of providing relief for the hard-pressed taxpayer.
But the Chancellor, in that engaging and—if I may say so without disrespect—juvenile way, says that all taxes are bad; that ours are worse than most; that they are all too high, and that as long as he is there he will pull them down. Never were such words from the Chancellor received with such wild enthusiasm—and never were comments made by a Chancellor made more wildly than were his. I must say that he knows how to


keep up the spirits of his supporters—which is one of the great qualifications of a Chancellor of the Exchequer. But the chickens will come home to roost, and the Chancellor will find that the relief given in the Clause will be looked at more critically by an intelligent community than he realises.
Although many of the indirect benefits from this may be hard to discern, I hope that there will be those of us who will have the necessary application and penetration to find out the effect of all this upon the companies concerned and upon our national income and general prosperity. At present, we are so doubtful about it that we cannot support the Chancellor's proposals and we should prefer that the whole of Part IV were left aside for the moment so that it might be further examined in the light of the needs of the present situation. However, as the Chancellor has already confessed that he is a "whole-hogger", I do not suppose he will do any such thing, and there will be no alternative left for us but to register our opinion in the customary way and say that we do not like it and that we cannot go into the Lobby to support it.

Sir Patrick Spens: As I heard the speech of the hon. Member for Sowerby (Mr. Houghton) and listened to hon. Members opposite retracting the good will expressed last year, and observed that even the most enthusiastic hon. Members opposite have continually voted against the Government, I was filled with regret. On the other hand, as was said by the hon. Member for Sowerby, the Chancellor is determined to go ahead. I wish that he was determined to go further ahead.
The only comment I wish to make about this Clause is that it makes a distinction for the first time between trading and investment income, and in investment income, of course, is included the income from trading subsidiaries registered overseas. As I said last night, I am staking out a claim for the future. I hope the time will come when the income from trading subsidiaries overseas will be treated as trading income. From a practical point of view there is no difference whether one carries on trade through a branch or through a subsidiary company established overseas. For that reason, and from the trading

and practical point of view, it is really a theoretical difference which should not exist when the income is derived from an actual overseas trade corporation, or when it comes from a subsidiary corporation which exists wholly in order to assist the trade of a group of companies.
I am grateful for the scheme. I think it bold and I believe it will be useful. I do not believe in these anxieties about how it will affect capital at home and that sort of thing. I think it necessary for the development of the trade of the country as a whole. I hope that it will meet the practical needs of businessmen and that these distinctions between strict overseas corporations and subsidiary companies, created or acquired for the purpose of carrying on part of the same trade of the same group of companies will he removed, and that ultimately the income will be treated as trading income, which of course it is.

Mr. E. Fletcher: I am tempted to intervene because in his opening remarks the right hon. and learned Member for Kensington, South (Sir P. Spens) accused my hon. Friends of inconsistency between the line we adopted during the debate last year and the debate this year.

Sir P. Spens: Less enthusiasm.

Mr. Fletcher: I wish to deal with the accusation as I understand it because it has been made in other quarters. I am not content merely with going through the Lobbies every time the Division bell rings; I should like to express what I feel.
I consider that there is no inconsistency between the support which I gave to the new Clause put on the Order Paper last year in the names of some of my hon. Friends, whereby the Chancellor was urged to introduce a measure of relief regarding companies engaged abroad in what, for the want of a better term, may be described as pioneering activities. I think that a genuine case was made out for that. It was that where companies, whether British. American or of any other nationality, trading and operating in an overseas country, were subject to local laws specially designed to give some attraction and advantage to pioneering efforts in that country, British companies found themselves at a manifest and obvious disadvantage compared with


those companies registered in other countries, whether America, Germany, France, Belgium, Holland or elsewhere.
On those grounds, I think there is a case for removing from the British companies the discrimination under which they labour at present. It was with that objective that we put down the Clause last year, and it is with precisely the same objective that we have made similar proposals this year.
I agree with my hon. Friend the Member for Sowerby (Mr. Houghton) that this Clause is the central feature of the Chancellor's first Budget. I do not wish to pay a compliment to the Chancellor on his Budget or any part of it. The right hon. Gentleman would not expect me to do so. We have to try, firstly, to form an objective judgment about whether or not this set of proposals is necessary; secondly, sensible; thirdly, equitable and fourthly, workable. I have read carefully both the majority and the minority Reports of the Royal Commission; I have read the observations of the Board of Inland Revenue and I have listened to the speeches made yesterday and today. I can appreciate how the difference of opinion arises, but I feel that the balance of argument and the whole of the weight of evidence available is against the proposals of the Chancellor.
I am prepared, if necessary, to put aside the observations of the Board of Inland Revenue that they are unworkable and may lead to a great deal of evasion, anomalies and difficulties. After all, the Chancellor will be responsible for seeing that attempts at evasion, or to obtain undue advantage over and above what he intends to concede, are prevented, and that any loopholes are closed. We wish him success in his endeavours and we shall give him all possible assistance. But, surely, the real question is whether, in the interests of the country's economy, it is necessary at this stage to make such a vital and serious inroad into the principles of equality of taxation which have hitherto been one of the cardinal tenets of our fiscal policy.
I am not persuaded that it is necessary. My experience is that under the present law British companies have not managed too badly in finding opportunities for overseas investment during the last few years. There are the opportuni

ties provided by forming subsidiary companies with managements abroad, and so on. Statistics show that in the last few years there has been a substantial amount of overseas investment on the part of British companies. From the point of view of the national economy that it is questionable whether the limited amount of capital which this country has available for investment should not be wholly concentrated in this country rather than permitting and, indeed, encouraging a large amount of it to be utilised to obtain tax benefits offered by this scheme.
That is a matter of economic judgment, but with regard to the fiscal questions, the taxation questions, with which we are primarily concerned, what I think worries a great many people is that in this Finance Bill we are introducing a very serious precedent; we are discriminating between one kind of taxpayer and another. We are departing from the principle of treating all taxpayers and taxpaying companies alike.
7.30 p.m.
To introduce such a departure may well have serious repercussions. In any event, it is bound to create a great deal of heart-burning and a great deal of injustice on the part of those companies and shareholders in those companies who are not favoured by these concessions. They—particularly those engaged in export—might equally well stake out claims for differential and more beneficial treatment on the ground that by their industrial and commercial efforts, they are also making important contributions to the national economy. The danger is that once that principle is conceded, once it is conceded that the Chancellor of the Exchequer in framing his Budget proposals can discriminate in favour of one kind of taxpayer or against one class of company on the ground that the work which it is doing or the business enterprise in which it is engaged is of greater importance to the national economy, we are embarking on the slippery slope and are treading very dangerous ground.
That is the major criticism of the Chancellor's proposal. As the Royal Commission pointed out, any proposal of this kind, by reducing taxation to the extent of £35 million, or perhaps very much more, on this particular class of companies engaged in this particular kind


of trade must inevitably produce as a corollary the effect that other taxpayers will have to bear an additional burden. Whether that additional burden falls on all other companies or has to be met by old-age pensioners, or produces the result that the Chancellor cannot accord reliefs and allowances of one kind and another which we think are more deserving, the fact remains that this relief to the extent of £35 million has to be found in some way or another by all other taxpayers. It is for these reasons, because I do not think that the case has been made out on fiscal ground, on workability or on grounds of national economy that I am opposed to these proposals.

Mr. Jay: I do not know whether the Chancellor intends to say anything himself on this Clause, but before we part with it I wish to refer to one matter which has not been much discussed in these debates. That is the very considerable capital gains which the Chancellor has presented to the luckier shareholders in these companies as a result of this action in the Budget.
My hon. Friend the Member for Sowerby (Mr. Houghton) said that the Chancellor did not like speaking of having given away revenue by his tax actions. I thought the Chancellor was being a little unkind to his last predecessor but one, the Lord Privy Seal, because the present Lord Privy Seal, in his Budgets of 1955, constantly referred to himself as having given away large amounts of revenue. Therefore, when the Chancellor casts aspersions on that conception, I am afraid he is again making attacks on his predecessor, the Lord Privy Seal, who is again in trouble in the office to which he has removed himself, or has been removed.
This is a Clause which gives remission of Income Tax on the trading profits retained in the business of these overseas trade corporations, but at the same time imposes Income Tax on dividends paid to the shareholders of the companies. Presumably, the Chancellor must have realised that as a result it encourages the corporations to put profits to reserve and over a period of time that is bound to mean capital appreciation for the shareholders. I have a much higher opinion of the Inland Revenue than either the Chancellor or my hon. Friend the Member for Sowerby—although I do not

think either of them would get very far without it—but I propose in this case to rest my argument not so much on its authority as on that of the Financial Times.
I do not know whether the Chancellor noticed it, but at the very beginning, on the publication of the Bill, the Financial Times pointed out that this provision would give some very agreeable capital appreciation to Surtax-payers in particular. On 1st May, after having described the way in which the concession would work, one of its first comments was:
Although this does increase the scope for higher dividends, there will be a clear incentive to retain profits to the greatest extent possible; the main investment appeal is to the surtax-payer interested in steady capital appreciation. Indeed, in so far as the general object of the proposals is to encourage the retention of profits, their most interesting investment implications are for surtax-payers. Not only are they likely…
That is the concessions—
to promote a steady rise in asset values, but distribution of liquidation (after the return of tax-free capital) will be subject only to income tax, not to surtax or profits tax.
Perhaps the Chancellor thinks that is a minor effect of this concession, but, quite apart from the major effects in the rest of the Bill, a very attractive field for tax-free gains has been opened up. The Economist, on 4th May, also commented on the same point, rather more briefly:
As the concession encourages the growth of assets, its investment appeal is to the surtax-payer interested less in dividends than in capital appreciation.
Of course, the behaviour of the Stock Exchange over the last few months has borne out, as one would have expected it would, the truth of these observations in the financial Press. There has been a remarkable rise in the shares of the companies which are believed, at any rate in the City, to be likely to gain substantially by this concession. To take one example, I do not know whether the Chancellor observed the behaviour of Unilevers ordinary shares, not merely in the weeks since the Budget, but, strangely enough, most notably in the weeks immediately preceding the Budget. It would appear that there were very confident expectations in the City, as with Entertainments Duty, that something of this kind was to be done. The rise in Unilever shares at the beginning of the year was one of about 50 per cent. That seems


"a bit steep", which is a Parliamentary expression, in this connection.
Perhaps my hon. Friends were going a little too far in describing the Chancellor as reckless or frivolous, but I suppose he might say in the light-hearted, or light-headed, fashion in which he tosses these arguments aside, that the large profits might have been made by someone on the Stock Exchange who happened to have an idea that this would be put forward and be beneficial to Unilevers or some other company trading overseas but, "What does that matter? That is one of the minor consequences of this action."
I do not think we can look at it quite as lightheartedly as that. This illustrates a principle which is of much more general application. We believe that these capital gains are much too easy to secure and are much too free of taxation already. We think that avenues for such tax-free gains should be limited rather than further opened up. It is true in the case not merely of overseas trade corporations but of companies manufacturing in this country that if we enable them to build up their capital by this process of reinvestment of existing profits we are practically bound over any long period to present capital gains which are at present tax-free to the private shareholder.
For those reasons, we think that some method will have to be discovered of building up reserves and capital both for companies operating abroad such as we are now discussing and over the whole field of industry other than this method of self-financing, company saving or whatever one calls it, which, though very beneficial on the one hand in that it means national savings, is much less beneficial on the other in that it means capital gains for private shareholders.
I should like to ask the Chancellor—I do not think he will deny that this has been one of the results of his action—whether he is quite happy about the effects of this discrimination in bringing to operators on the Stock Exchange such immediate benefits, which are, incidentally, nothing to do with overseas trading or extra capital employed in overseas trading but are immediate speculative benefits.

The Chancellor of the Exchequer (Mr. Peter Thorneycroft): Perhaps I might say

a few words in conclusion on the debate on the Clause, if only because, as the hon. Member for Sowerby (Mr. Houghton) said, it is the effective central Clause of this group of proposals associated with the overseas trade corporations.
It is a good Clause. I venture to think that it is an effective Clause which will make a considerable contribution to the building up of the reserves and the general investment in British companies trading overseas. I dare say that because of that the capital value of the companies will rise, but if—

Mr. Jay: Discrimination.

Mr. Thorneycroft: —one were to flinch from making tax reductions simply because in some circumstances there might be capital gain, one would have a sorry job as Chancellor of the Exchequer. There are not only capital gains in this matter. Many people will gain—the people who work for the companies, the territories overseas where they are situated, and the economy of this country. Whatever may be said about interim or short-term balance of payments, what is wanted is that we should have these trading operations carried on effectively, rightly capitalised, and investment put into them. As the hon. Member for Stechford (Mr. Roy Jenkins) very fairly said about that investment, one cannot invest a deficit. In the long run it depends on what we do here at home, how we build up surpluses, and matters of that kind.
I am surprised to find the Labour Party hesitant about this investment. Hon. Members opposite have made a lot of it in their speeches in the country, particularly in regard to the Commonwealth, saying that a large proportion of the gross national product should be devoted to it. When they are presented with a practical proposition for reinforcing success—in many cases these are companies or operations which are already established and going ahead—and we give an opportunity to plough back profits free of tax, I should have thought that hon. Members opposite would have welcomed such a practical application of the very policies which they have in some measure advocated in the country.
7.45 p.m.
The right hon. Member for Battersea, North (Mr. Jay) thought that any form


of discrimination was abhorrent and should be avoided. Listening to him, I thought that the sternest minds in the Inland Revenue could not have bettered him in his approach to matters of this kind. He said that in no circumstances whatever would he put one taxpayer into a position in any way different from any other. It sounded all right at the time, but it did not fit in with some of the things we heard earlier when all kinds of discrimination between different types of trade and those in the Commonwealth and those outside it were being urged upon us. Moreover, in the case of investment allowance and so on I have heard discrimination urged as a positive virtue in trade matters. I do not urge that absolute consistency should be held all the way through, but some of the things which the right hon. Gentleman has said may be held a little against him.

Mr. Jay: Surely the right hon. Gentleman will agree that some discrimination may be good and some bad.

Mr. Thorneycroft: The right hon. Gentleman was going a little further than

that. He was the high priest of non-discrimination. No form of discrimination at all was to be allowed. All I am asking for is a little of the broader, more liberal view which the right hon. Member has put forward.

The right hon. Gentleman is right in saying that some discrimination can be good and some bad. The truth in this Clause and on the facts which confront us is that there is bound to be discrimination. There is discrimination today, but it is discrimination as between British companies trading overseas and their competitors. It is that discrimination which we seek to end or at least very much to mitigate. It is because we desire to end that discrimination against our British traders that we have incorporated these provisions in the Bill, and it is on those grounds that we ask the Committee to accept the Clause.

Question put, That the Clause stand part of the Bill:—

The Committee divided: Ayes 229, Noes 178.

Division No. 149.]
AYES
[7.46 p.m.


Agnew, Sir Peter
Cooper-Key, E. M.
Hall, John (Wycombe)


Aitken, W. T.
Cordeaux, Lt.-Col. J. K.
Harris, Frederic (Croydon, N.W.)


Allan, R. A. (Paddington, S.)
Corfield, Capt. F. V.
Harris, Reader (Heston)


Amery, Julian (Preston, N.)
Craddock, Beresford (Spelthorne)
Harvey, Sir Arthur Vere (Macclesfd)


Amory, Rt. Hn. Heathcoat (Tiverton)
Crowder, Sir John (Finchley)
Harvey, John (Walthamstow, E.)


Arbuthnot, John
Crowder, Petre (Ruislip—Northwood)
Heald, Rt. Hon. Sir Lionel


Armstrong, C. W.
Cunningham, Knox
Heath, Rt. Hon. E. R. C.


Ashton, H.
Currie, G. B. H.
Henderson, John (Cathcart)


Atkins, H. E.
Dance, J. C. G.
Henderson-Stewart, Sir James


Baldock, Lt.-Cmdr. J. M.
Davidson, Viscountess
Hesketh, R. F.


Baldwin, A. E.
D'Avigdor-Goldsmid, Sir Henry
Hicks-Beach, Maj. W. W.


Balniel, Lord
Deedes, W. F.
Hill, Rt. Hon. Charles (Luton)


Barber, Anthony
Dodds-Parker, A. D.
Hill, Mrs. E. (Wythenshawe)


Barlow, Sir John
Doughty, C. J. A.
Hill, John (S. Norfolk)


Barter, John
Drayson, G. B.
Hirst, Geoffrey


Baxter, Sir Beverley
du Cann, E. D. L.
Holland-Martin, C. J.


Bell, Philip (Bolton, E.)
Dugdale, Rt. Hn. Sir T. (Richmond)
Holt, A. F.


Bell, Ronald (Bucks, S.)
Eden, J. B. (Bournemouth, West)
Hope, Lord John


Bevins, J. R. (Toxteth)
Elliott, R.W.(N'Castle upon Tyne, N.)
Hornby, R. P.


Bidgood, J. C.
Farey-Jones, F. W.
Hornsby-Smith, Miss M. P.


Birch, Rt. Hon. Nigel
Finlay, Graeme
Horobin, Sir Ian


Bishop, F. P.
Fisher, Nigel
Howard, Hon. Greville (St. Ives)


Black, C. W.
Fletcher-Cooke, C.
Howard, John (Test)


Body, R. F.
Foster, John
Hudson, W. R. A. (Hull, N.)


Bossom, Sir Alfred
Fraser, Sir Ian (M'cmbe &amp; Lonsdale)
Hughes Hallett, Vice-Admiral J.


Bowen, E. R. (Cardigan)
Freeth, Denzil
Hurd, A. R.


Boyd-Carpenter, Rt. Hon. J. A.
Gammans, Lady
Hutchison, Sir Ian Clark (E'b'gh, W.)


Braine, B. R.
Garner-Evans, E. H.
Hutchison, Sir James (Scotstoun)


Brooman-White, R. C.
George, J. C. (Pollok)
Hutchison, Michael Clark (E'b'gh, S.)


Bryan, P.
Glover, D.
Hylton-Foster, Rt. Hon. Sir Harry


Bullus, Wing Commander E. E.
Godber, J. B.
Iremonger, T. L.


Burden, F. F. A.
Gomme-Duncan, Col. Sir Alan
Irvine, Bryant Godman (Rye)


Butler, Rt. Hn. R. A. (Saffron Walden)
Goodhart, Philip
Jenkins, Robert (Dulwich)


Carr, Robert
Gower, H. R.
Jennings, J. C. (Burton)


Cary, Sir Robert
Graham, Sir Fergus
Johnson, Dr. Donald (Carlisle)


Channon, Sir Henry
Grant, W. (Woodside)
Johnson, Eric (Blackley)


Chichester-Clark, R.
Grant-Ferris, Wg Cdr. R. (Nantwich)
Johnson, Howard (Kemptown)


Clarke, Brig. Terence (Portsmth, W.)
Green, A.
Joynson-Hicks, Hon. Sir Lancelot


Cole, Norman
Grimond, J.
Keegan, D.


Cooke, Robert C.
Grosvenor, Lt.-Col. R. G.
Kerby, Capt. H. B.


Cooper, A. E.
Gurden, Harold
Kerr, Sir Hamilton




Kershaw, J. A.
Nugent, G. R. H.
Stanley, Capt. Hon. Richard


Kimball, M.
Oakshott, H. D.
Stevens, Geoffrey


Lagden, G. W.
Orr-Ewing, Charles Ian (Hendon, N.)
Steward, Harold (Stockport, S.)


Lambton, Viscount
Osborne C.
Storey, S.


Lancaster, Col. C. C.
Page, R. G.
Studholme, Sir Henry


Leather, E. H. C.
Pannell, N. A. (Kirkdale)
Summers, Sir Spencer


Leavey, J. A.
Partridge, E.
Sumner, W. D. M. (Orpington)


Legge-Bourke, Maj. E. A. H.
Peyton, J. W. W.
Taylor, Sir Charles (Eastbourne)


Legh, Hon. Peter (Petersfield)
Pickthorn, K. W. M.
Teeling, W.


Lindsay, Hon. James (Devon, N.)
Pike, Miss Mervyn
Temple, John M.


Lindsay, Martin (Solihull)
Pilkington, Capt. R. A.
Thomas, Leslie (Canterbury)


Lloyd, Maj. Sir Guy (Renfrew, E.)
Pitt, Miss E. M.
Thompson, Kenneth (Walton)


Lucas, P. B. (Brentford &amp; Chiswick)
Pott, H. P.
Thompson, Lt.-Cdr. R. (Croydon, S.)


Lucas-Tooth Sir Hugh
Powell, J. Enoch
Thorneycroft, Rt. Hon. P.


McAdden, S. J.
Price, Henry (Lewisham, W.)
Thornton-Kemsley, C. N.


Macdonald, Sir Peter
Raikes, Sir Victor
Tilney, John (Wavertree)


Mackeson, Brig. Sir Harry
Ramsden, J. E.
Turton, Rt. Hon. R. H.


Mackie, J. H. (Galloway)
Rawlinson, Peter
Tweedsmuir, Lady


McLaughlin, Mrs. P.
Redmayne, M.
Vane, W. M. F.


Maclean, Fitzroy (Lancaster)
Remnant, Hon. P.
Vaughan-Morgan, J. K.


McLean, Neil (Inverness)
Renton, D. L. M.
Vickers, Miss Joan


Macmillan, Rt. Hn. Harold (Bromley)
Rippon, A. C. F.
Wade, D. W.


Macmillan, Maurice (Halifax)
Robinson, Sir Roland (Blackpool, S.)
Wakefield, Edward (Derbyshire, W.)


Macpherson, Niall (Dumfries)
Rodgers, John (Sevenoaks)
Wall, Major Patrick


Maddan, Martin
Roper, Sir Harold
Ward, Rt. Hon. G. R. (Worcester)


Maitland, Cdr. J. F. W.(Horncastle)
Ropner, Col, Sir Leonard
Ward, Dame Irene (Tynemouth)


Maitland, Hon. Patrick (Lanark)
Russell, R. S.
Webbe, Sir H.


Manningham-Buller, Rt. Hn. Sir R.
Schofield, Lt.-Col. W.
Whitelaw, W. S. I.


Markham, Major Sir Frank
Scott-Miller, Cmdr. R.
Williams, Paul (Sunderland, S.)


Marlowe, A. A. H.
Sharples, R. C.
Wills, G. (Bridgwater)


Marshall, Douglas
Shepherd, William
Woollam, John Victor


Mathew, R.
Simon, J. E. S. (Middlesbrough, W.)
Yates, William (The Wrekin)


Mawby, R. L.
Smithers, Peter (Winchester)



Milligan, Rt. Hon. W. R.
Smyth, Brig. Sir John (Norwood)
TELLERS FOR THE AYES:


Nabarro, G. D. N,
Spearman, Sir Alexander
Colonel J. H. Harrison and Mr. Hughes-Young.


Neave, Airey
Spence, H. R. (Aberdeen, W.)



Nicolson, N.(B"n'm'th, E. &amp; Chr'ch)
Spens, Rt. Hn. Sir P. (Kens'gt'n, S.)





NOES


Ainsley, J. W.
Fraser, Thomas (Hamilton)
Lee, Miss Jennie (Cannock)


Allaun, Frank (Salford, E.)
Gaitskell, Rt. Hon. H. T. N.
Lewis, Arthur


Allen, Arthur (Bosworth)
Gibson, C. W.
Lindgren, G. S.


Allen, Scholefield (Crewe)
Gooch, E. G.
Logan, D. G.


Awbery, S. S.
Gordon Walker, Rt. Hon. P. C.
MacColl, J. E.


Bacon, Miss Alice
Greenwood, Anthony
McInnes, J.


Benn, Hn. Wedgwood (Bristol, S.E.)
Grey, C. F.
McKay, John (Wallsend)


Benson, G.
Griffiths, David (Rother Valley)
MacMillan, M. K. (Western Isles)


Beswick, Frank
Griffiths, Rt. Hon. James (Llanelly)
MacPherson, Malcolm (Stirling)


Blackburn, F.
Hale, Leslie
Mahon, Simon


Blenkinsop, A.
Hall, Rt. Hn. Glenvil (Colne Valley)
Mallalieu, E. L. (Brigg)


Blyton, W. R.
Hamilton, W. W.
Mann, Mrs. Jean


Boardman, H.
Hannan, W.
Marquand, Rt. Hon. H. A.


Bottomley, Rt. Hon. A. G.
Hastings, S.
Mellish, R. J.


Bowden, H. W. (Leicester, S.W.)
Hayman, F. H.
Messer, Sir F.


Bowles, F. C.
Healey, Denis
Mikardo, Ian


Boyd, T. C.
Henderson, Rt. Hn. A. (Rwly Regis)
Mitchison, G. R.


Brockway, A. F.
Hobson, C. R. (Keighley)
Monslow, W.


Brown, Thomas (Ince)
Houghton, Douglas
Moody, A. S.


Burton, Miss F. E.
Howell, Charles (Perry Barr)
Morris, Percy (Swansea, W.)


Champion, A. J.
Hughes, Cledwyn (Anglesey)
Moyle, A.


Chapman, W. D.
Hughes, Emrys (S. Ayrshire)
Mulley, F. W.


Clunie, J.
Hughes, Hector (Aberdeen, N.)
Noel-Baker, Rt. Hon. P. (Derby, S.)


Coldrick, W.
Hunter, A. E.
Oliver, G. H.


Collick, P. H. (Birkenhead)
Hynd, H. (Accrington)
Oram, A. E.


Collins, V.J.(Shoreditch &amp; Finsbury)
Hynd, J. B. (Attercliffe)
Orbach, M.


Corbet, Mrs. Freda
Irving, Sydney (Dartford)
Oswald, T.


Cove, W. G.
Janner, B.
Owen, W. J.


Craddock, George (Bradford, S.)
Jay, Rt. Hon. D. P. T.
Padley, W. E.


Cronin, J. D.
Jeger, Mrs. Lena (Holbn &amp; St. Pncs. S.)
Palmer, A. M. F.


Davies, Ernest (Enfield, E.)
Jenkins, Roy (Stechford)
Pannell, Charles (Leeds, W.)


Davies, Harold (Leek)
Johnson, James (Rugby)
Pargiter, G. A.


Deer, G.
Jones, Rt. Hon. A. Creech (Wakefield)
Parker, J.


de Freitas, Geoffrey
Jones, David (The Hartlepools)
Parkin, B. T.


Delargy, H. J.
Jones, Jack (Rotherham)
Paton, John


Dodds, N. N.
Jones, J. Idwal (Wrexham)
Pearson, A.


Dugdale, Rt. Hn. John (W. Brmwch)
Jones, T. W. (Merioneth)
Peart, T. F.


Edwards, Rt. Hon. John (Brighouse)
Kenyon, C.
Pentland, N.


Evans, Albert (Islington, S.W.)
Key, Rt. Hon. C. W.
Popplewell, E.


Fernyhough, E.
King, Dr. H. M.
Prentice, R. E.


Fienburgh, W.
Ledger, R. J.
Price, Philips (Gloucestershire, W.)


Fletcher, Eric
Lee, Frederick (Newton)
Probert, A. R.


Forman, J. C.

Proctor, W. T.







Pryde, D. J.
Sparks, J. A.
White, Mrs. Eirene (E. Flint)


Randall, H. E.
Steele, T.
White, Henry (Derbyshire, N.E.)


Rankin, John
Stewart, Michael (Fulham)
Wilcock, Group Capt. C. A. B.


Redhead, E. C.
Stonehouse, John
Wilkins, W. A.


Rhodes, H.
Stones, W, (Consett)
Willey, Frederick


Roberts, Goronwy (Caernarvon)
Strachey, Rt. Hon. J.
Williams, Rev. Llywelyn (Ab'tillery)


Robinson, Kenneth (St. Pancras, N.)
Swingler, S. T.
Williams, Ronald (Wigan)


Rogers, George (Kensington, N.)
Sylvester, G. O.
Williams, Rt. Hon. T. (Don Valley)


Ross, William
Taylor, John (West Lothian)
Williams, W. R. (Openshaw)


Royle, C.
Thomson, George (Dundee, E.)
Willis, Eustace (Edinburgh, E.)


Shinwell, Rt. Hon. E.
Thornton, E.
Wilson, Rt. Hon. Harold (Huyton)


Short, E. W.
Tomney, F.
Winterbottom, Richard


Simmons, C. J. (Brierley Hill)
Ungoed-Thomas, Sir Lynn
Woof, R. E.


Skeffington, A. M.
Viant, S. P.
Yates, V. (Ladywood)


Slater, Mrs. H. (Stoke, N.)
Warbey, W. N.



Slater, J. (Sedgefield)
Wells, Percy (Faversham)
TELLERS FOR THE NOES:


Sorensen, R. W.
West, D. G.
Mr Holmes and Mr. J. T Price.


Soskice, Rt. Hon. Sir Frank
Wheeldon, W. E.

Clause ordered to stand part of the Bill.

Clause 23.—(DIVIDENDS PAID OUT OF EXEMPT TRADING INCOME: INCOME TAX CHARGE.)

Mr. Powell: I beg to move, in page 18, line 26, after "Schedule D", to insert:
for the year of assessment in which the dividend becomes due".
This is little more than a drafting Amendment. The subsection as it stands makes it clear that dividends will be charged at the standard rate for the year of assessment in which they fall due. It perhaps does not sufficiently make it clear that they will be charged in the year in which the dividend falls due at that rate. It is simply to clarify that that this Amendment, and the two which follow and hang with it, are put forward.

Amendment agreed to.

Further Amendment made: In page 18, line 29, leave out first "the" and insert "that".—[Mr. Powell.]

Amendment proposed: In page 18, line 29, leave out from "year" to end of line.—[Mr. Powell.]

Mr. Mitchison: I am very glad to see that the hon. Gentleman is tidying up his drafting. I have to do mine from time to time, too.

Amendment agreed to.

Mr. Roy Jenkins: I beg to move, in page 18, line 34, to leave out subsections (2) and (3).
Unlike the previous Amendments, Sir Norman, this is more than a drafting Amendment. Were it carried out, it would have some fairly large consequences, and I am glad to see that its importance is recognised by the presence of the Government Chief Whip, the first time for quite a period in the course of our deliberations. The purpose of the

Amendment is to withdraw the exemption from Income Tax which the Bill gives to distributions of dividends to non-resident shareholders.
This is a fairly difficult issue and one about which, like some of the others that we have considered yesterday and today, the Royal Commission found some difficulty in making up its mind. I give it freely to the Financial Secretary that the majority, the rather doubtful majority of the Royal Commission which reported on this point, did come down eventually in favour of granting the exemption given under the Bill, but it did so with a good deal of hesitancy and the bringing forward of some arguments on the other side. I certainly think that the arguments on the other side are of some force, and ought to be considered by the Committee. We are, after all, putting non-resident shareholders in United Kingdom O.T.C.s in an extraordinarily favourable position when we give, as it were, this double concession.
To take the rather extreme but in no way impossible case of a shareholder resident in Bermuda holding shares in a company registered in London but operating in Kuwait, this shareholder, as far as I can see, would escape any tax of any sort on all the profits earned by the company and any distributions which were made to him. It is an extraordinarily favourable position in the modern world for anyone to be in, and it is a position, of course, that might well encourage certain large shareholders in O.T.C.s to emigrate.
8.0 p.m.
When the Chancellor introduced his Budget, the Surtax concessions were at times presented in such a form as to suggest that the Chancellor had had to introduce them in order to drag most valuable


members of the community out of the emigration queues where they were waiting to clamber aboard ships and aircraft leaving for Canada or wherever it might be; the concessions were introduced only just in time, it was suggested, apparently, in order to prevent this great wave of emigration which would, so it was argued, have been most damaging to the interests of this country.
It is a little curious that the same Finance Bill which enshrines these Surtax provisions, presented to a very large extent as having been brought forward in order to counter this move towards emigration, should contain a provision which, certainly so far as a shareholder in an O.T.C. is concerned, would give a very great incentive to undertake precisely that act of emigration which was regarded as so undesirable in the case of other Surtax payers. I do not know whether the Government would counter that argument by saying that, on the whole, in their view shareholders in O.T.C.s are not particularly desirable citizens whom they would particularly wish to keep in the country. It would be a possible argument, but I think a slightly dangerous one, and I should be a little surprised if the Financial Secretary were to use it. But if he is not prepared to use it, there seems to be a good deal of contradiction in the Government's approach to these matters.
Apart from those matters, it can be argued that there should be a certain liability—I am not for the moment discussing what it should be—to United Kingdom tax even where a company operates in Kuwait and the shareholder lives in Bermuda. After all, if someone wants to have a company registered in the City of London or elsewhere in this country and enjoy the benefits of British protection, the protection of British company law and, presumably, in certain circumstances, of British prestige, British influence and of the British Armed Forces overseas, there ought to be some liability to United Kingdom tax. To breach that principle completely and say that it is possible for a shareholder to draw dividends from a company registered in the United Kingdom but in no possible way incur any liability to United Kingdom tax is going altogether too far in the granting of exemptions.
No doubt, the main Government argument in favour of the exemption will be

that it encourages foreign shareholders to invest in United Kingdom resident O.T.C.s and thereby encourages the flow of capital, not perhaps towards this country, but towards United Kingdom registered companies. Precisely where does this argument lead? The difficulty is immediately apparent in my hesitation about saying "towards this country", because, if we want foreign capital to flow into United Kingdom companies, the question arises whether we want it to flow in exclusively to companies operating overseas. Do we want to give foreign resident shareholders an enormous incentive, if they are going to invest in a London registered company, to do it in one which on no account trades anywhere in the United Kingdom? Is there a case for giving to, shall we say, the United States shareholder an enormous incentive to invest in a company registered in London which owns cotton mills in India rather than in one which owns cotton mills in Lancashire? Yet that is the very thing which this new incentive is introducing by the Clause as it stands.
I am a little sceptical altogether about what is the advantage to this country of encouraging companies whose connections with this country are really so tenuous as to be almost non-existent. We are asked to embrace the principle that the existence and development of a company operating entirely overseas, owned, it is suggested, to as large an extent as possible—because we want to encourage foreign shareholders—by people almost entirely not resident in this country, is of enormous advantage to our economy. The only connection which such a company has with this country is that it happens to have its seat of control in London or elsewhere in the country. Curiously enough, when we get to that point, we are then told by the right hon. and learned Gentleman the Member for Kensington, South (Sir P. Spens) and by other hon. Gentlemen opposite that even that connection with this country is of itself of no importance and that the company should be quite free to move its seat of control if it wants to do so.
I am a little doubtful, as I say, about the advantage of encouraging companies whose connection with this country is so tenuous as really to be almost nonexistent. I hope, therefore that the Financial Secretary, when he comes to reply, will apply himself closely, as he


has done in all the debates in which he has taken part, I think, to the points put to him. I hope he will try to explain what is the reason for this excessively favourable treatment of non-resident shareholders. Why should he wish to encourage shareholders in O.T.C.s to emigrate? Why is it reasonable that someone should be in the position of paying no tax at all on the operations of the company from which he draws his income? Why is it desirable that there should be this incentive for foreign capital to go exclusively into companies operating overseas as opposed to those operating in this country? Is it reasonable that, in the case of a company registered in England and enjoying the protection of the laws of this country and of the power and prestige of the British Government, there should be no contribution, in all the circumstances, towards those services?

Mr. Chapman: I share with my hon. Friend the Member for Birmingham, Stechford (Mr. Roy Jenkins) considerable doubts about this part of the Clause. I have one particular question which I shall put to the Financial Secretary, and I hope that he will be good enough to find an answer to it. Later in my speech, I want to come back to consider this question of encouraging the richer taxpayer generally to emigrate, and I shall have a few words to say about the sort of "Noel Coward" case which is in all our minds. There is, however, as far as I can see, another and a beautiful way of possible avoidance in this Clause, and, from my own researches. I cannot see that the existing legislation has a chance of stopping it. If it has, I shall be very glad indeed to know.
The Clause makes clear, and we know in any event, that in tax law a person is also a company; but it is made clear further that it is possible under the Clause for a foreign company to be exempt if it holds shares in an O.T.C. Just as a foreign resident is exempt from the payment of tax on the dividends distributed by an O.T.C., so would a foreign company be exempt from paying tax on dividends on shares in a British O.T.C.
In that case, if I were a rich taxpayer who wished to get the advantage of non-residence and to get tax exemption on my

holdings in an overseas trade corporation, what is there to stop me from, say, setting up a £50 private company in Bermuda which would, in effect, have my holdings of shares in an O.T.C.? Then, if I wished it could accumulate funds for me in Bermuda. They would never be remitted back here. Therefore, I should not be taxed on them on a remittance basis as I would if they were sent to this country. They could be accumulated for me there and I could still be a resident of this country—I should not be a non-resident person. I should not have personally to emigrate. I should merely have a private company which had emigrated on my behalf. I should then get all the benefits of the Clause.
It would be a very nice loophole, if it existed, for many rich men simply to deposit their securities abroad and get some nice tax-free dividends on them. I thought that this loophole would possibly be blocked by Section 36 of the 1951 Finance Act, which controls the emigration of companies, but try as I may throughout the whole of that Section, I cannot find that it covers the case.
As far as I can see, that Section, which prohibits the emigration of companies, does not prohibit, so to speak, the emigration of personal holdings to a foreign country, which would then be held abroad instead of being held in this country. I should be pleased if the Economic Secretary could tell me any more, but as far as I can see, the loophole still remains.
Let me now return to the general issues as set out by my hon. Friend the Member for Stechford. What is also very surprising is the definition of "emigration". My hon. Friend suggested that people would be tempted to emigrate, but that is not quite so, as, I think, my hon. Friend would be the first to agree. If I am a rich man who wishes to get the benefit of the Clause, I do not have to emigrate to a foreign country in any permanent sense. What I have to do is to keep myself abroad sufficiently under the Schedule D rules, which are quite clear on this matter. I should not come home for more than six months in any year. I probably should not maintain a permanent place of abode, or the Inland Revenue would become suspicious again. I must not even, in periods of less than six months of the year, make my visits too frequently. If I were to start coming home for three or four


months at a time in about four consecutive years, the Inland Revenue might begin to say that I was resident. These are not terribly difficult conditions to impose on these people.
If I were a rich man and wanted a beautifully easy tax-free set of dividends on which to live, I could very nicely winter every year in Bermuda or some pleasant foreign country. I could come home for at least two months every year to arrange my affairs, or possibly three months. I should miss a year occasionally in order to fulfil the requirements of the Inland Revenue. As far as I can see, like Mr. Noel Coward but, perhaps, in a more agile way, I should be avoiding tax and I should become non-resident for the purpose of the subsection.
8.15 p.m.
It is very bad indeed—I do not say this in any partisan class sense—that we should now be offering a tax-free bonus to the richer members of the community who can afford to winter abroad for nine months in every year and simply come home to arrange their business affairs for two or three months in most years. That is precisely what the subsection does. I do not have to emigrate or change my nationality. I simply have to be abroad for a sufficient portion of every year. The position is more dangerous, therefore, than even my hon. Friend pointed out. Emigration as defined within the meaning of the subsection is nothing very strong.
Then, there is the final and general point raised by my hon. Friend about the way in which persons who are investing in British overseas trade corporations are to some extent getting protection for their shareholdings and to that extent ought to be paying United Kingdom tax. The Royal Commission dithered on this issue, quite unjustifiably, I thought. Some of its remarks were really not very good arguments. As regards these non-residents and their holdings in British companies, the Royal Commission said, in paragraph 693:
their source enjoys the benefit of United Kingdom protection and therefore the charge to domestic tax is justified as an equivalent for the protection. It is true that the investor in a United Kingdom company has the security of our domestic legislation which governs the administration of companies: and in another sense such a company can expect that its interests overseas will be the concern of Your Majesty's Government.

Those are quite formidable, tangible things.
We are encouraging a section of foreign nationals to invest in British companies. They invest in British companies precisely because of the security, stability and protection of our laws and the way in which our tax system and our political system protects any investment that is properly made. There is no likelihood of unjustifiable and arbitrary confiscation of their assets. All these benefits are British assets which we are to some extent conferring on these people. [Interruption.] Do hon. Members opposite not consider that they are tangible?

Mr. A. E. Cooper: Has the hon. Member read the Labour Party's manifesto on nationalisation?

Mr. Chapman: We are not talking about whether, in fact, there is nationalisation. When there is nationalisation, for example, there is proper compensation and a stable Parliamentary system by which it is carried through. If the hon. Member does not believe I am right, he cannot expect foreign investors to invest in British companies. He cannot have it both ways.
The justification for the subsection that is advanced from the other side of the Committee is that our British system encourages people to invest in British companies. Now, hon. Members opposite are saying that the British system does not encourage people to invest in British overseas trade corporations. Which way round does the hon. Member for Ilford, South (Mr. Cooper) want it?

Mr. Cooper: We are not saying anything of the sort. What we are saying is that in the event of a return of the Labour Party to Government, if the speeches of hon. and right hon. Members opposite are to be believed, investments in transport and steel will be taken over without any compensation whatever.

Mr. Chapman: I am quite willing to argue the facts of those cases at any time that the hon. Member cares to choose. What he must bear in mind, however, is that despite the fact that nationalisation takes place in this country, much to my satisfaction, it nevertheless has not been any substantial discouragement to foreign investors to invest in our overseas trade operations. That is because of the


stability that the House of Commons applies to the whole way in which the matter is effected, and because of the guarantees which the system gives of fairness of treatment. The hon. Member really cannot have it both ways. He cannot have the Government putting forward the Clause as a way in which foreign investments will be attracted and, on the other hand, say that our system is not likely to attract those investments anyway.

Mr. Mitchison: On the assumption that many people will read the observations just made by the hon. Member for Ilford, South (Mr. Cooper), I should like to say that they are quite untrue.

Mr. Chapman: I am grateful to my hon. and learned Friend the Member for Kettering (Mr. Mitchison), but I frankly admit that I am more interested in sticking to the Clause and the real arguments that are being put forward on both sides of the Committee than in going into the byways into which the hon. Member for Ilford, South would lead me.
After all, these non-resident shareholders are getting something quite tangible—a great deal of protection and a guarantee when they invest in a British company. It is quite proper and quite important that our fiscal system should say that these people who are getting these benefits should make some contribution through taxation towards them. Otherwise, why do not they invest somewhere else? If they do not want the benefits that Britain can afford them why do not they take their investments elsewhere?
When we come back to the argument about the justification of attempts to attract foreign capital into our overseas trade corporations, the final point is that it can still be done in a way that is quite satisfactory. It is a way that has been bothering the right hon. and learned Member for Kensington, South (Sir P. Spens) all through our debates. It is the way of attracting capital to these firms via an overseas registered subsidiary, and then they would be free from the British code of taxation.
As the right hon. and learned Member and I and other hon. Members have pointed out, a large part of this kind of attraction of foreign capital is going on through foreign registered subsidiaries and not through the sort of subsidiary

that is likely to be an overseas trade corporation within the meaning of the Bill. I see no particular reason for suddenly bringing them all back through the British fiscal system as overseas trade corporations, unless they are willing to pay to some extent for the stability, and protection that Britain affords them in making their investments here.

Mr. Powell: The general effect of overseas trade corporation status is that a company though registered in this country, is, for the purposes of the Income Tax Acts, treated as if it were non-resident. A shareholder, who is not a resident of this country, who has shares in a non-resident company does not pay any United Kingdom Income Tax. Therefore, prima facie, since we are according to overseas trading corporations the position of a non-resident company, the consequence to a shareholder who is non-resident should follow, namely, that he does not pay United Kingdom Income Tax on his dividends.
I was strengthened in the feeling that this is the natural consequence by one of the last remarks made by the hon. Member for Northfield (Mr. Chapman), who pointed out that what is attracting foreign investment into foreign registered companies as compared with companies registered in this country is the advantage they have of avoiding United Kingdom tax thereby; and it is an underlying purpose of this part of the Bill that we do not want companies to be at a disadvantage in any respect just because they are registered in this country.
On general principles, and arising from the general purposes of this part of the Bill, I should have thought it a natural consequence that the non-resident shareholder should not pay United Kingdom Income Tax. As the hon. Member for Stechford (Mr. Roy Jenkins) pointed out, this point was considered by the Royal Commission. It came to the conclusion that on the whole, this was the right solution. For example, at the end of paragraph 692 of its Report, it said:
the non-resident shareholder seems to have a fair case for exemption of his dividends on general grounds.
That is as well as on economic grounds The Report concluded:
We do not think it necessary to say more than this, that the adoption of any scheme for


exempting company overseas profits from United Kingdom tax would raise directly the question of taxing dividends of the non-resident shareholder; and that whatever may have been true of the past, the case for their taxation today has worn very thin.
There is a further consideration besides the general logical position, and one that was not considered by the Royal Commission. It is a reason that is really decisive.
Most, though not all, of our double taxation relief agreements provide that United Kingdom Income Tax shall not be imposed upon a foreign resident beyond the taxation imposed upon the company from which the profits are drawn. That being so, it would clearly be a breach of the spirit, if not of the letter, of these double taxation agreements that a non-resident should bear tax upon his dividends from a company whose profits, unless and until they are distributed, are not subject to United Kingdom Income Tax. For this company the overseas trade corporation is in a quite different position from that of the ordinary British registered company which bears Income Tax on its profits whether it distributes them or not. Therefore, if we did not make this provision in subsection (2) we should be involved in a breach of a whole range of our double taxation agreements, and that is not a position we could well contemplate.
The hon. Member for Stechford directed all his arguments towards subsection (2), but of course, the Amendment, perhaps merely consequentially and as a matter of drafting, proposes also to omit subsection (3).

Mr. Mitchison: It has to, because subsection (3) is simply a provision for the purposes of subsection (2).

Mr. Powell: Oh, no. It is necessary for me to point out the importance of subsection (3). The effect of subsection (3), which would not be achieved if it were not within this Clause, is an effect to which I know many hon. Members of this Committee attach great importance. That is, that it should be possible to switch the profits of one overseas trade corporation to assist in building the business of another O.T.C. in the same group. Without this subsection that would not be possible. Although I realise that the proposal to omit this subsection was consequential, I thought it was worth while to point out its effect.

Mr. Jenkins: As my hon. and learned Friend said, subsection (3) in its present form could not stand without subsection (2), but the Financial Secretary is certainly correct in thinking that the burden of the Amendment is to remove subsection (2). If the hon. Gentleman would give an undertaking that he would put in subsection (3) in a different form, that would be satisfactory to us.

Mr. Powell: Anyhow, we are all clear that we want the effect of subsection (3), which is to enable overseas trade corporations within the same group to be able to use their profits anywhere within the group without incurring United Kingdom Income Tax in the process.
The hon. Member for Northfields put two specific avoidance cases to me. The first was of a United Kingdom resident shareholder in an overseas trade corporation who transferred his holding in it to a company registered overseas in a country where local tax was low or nonexistent, so as to be able to get the benefit of this subsection.

Mr. Chapman: While he remains resident.

8.30 p.m.

Mr. Powell: While he remains resident in this country. I think the hon. Gentleman will find that possibility is stopped by Section 412 of the Income Tax Act, 1952. Perhaps if I simply read the rubric of that Section, it will be sufficient for the present purpose. The Section contains:
Provisions for preventing avoidance of Income Tax by transactions resulting in the transfer of income to persons abroad.
In this case the income of a shareholder is transferred to the supposed Bermudan company abroad for avoidance purposes.

Mr. E. Fletcher: In the case posed by my hon. Friend there would be no transfer for the avoidance of tax, there would be a capital investment made in a Bermudan company. That company, being a foreign company for the purposes of this subsection, would derive all the benefits of the accumulation of profits in, for example, the Kuwait company. When there was a remittance to the United Kingdom company, the Bermudan company would not be subject to any tax. As a result, in the case posed, the


individual who started with an investment in the Bermudan company would accumulate a great deal of capital.

Mr. Powell: Yes, but for the purposes of the avoidance device it would be necessary for the United Kingdom shareholder in the overseas trade corporation to transfer his holdings in the O.T.C. to the Bermudan company. That would be the start of it, and it is that transaction which is prevented by the Section to which I have drawn attention.

Mr. Chapman: I am sorry I did not find that one; I only found the 1951 Act. It says specifically, if it is proved to be for tax avoidance. There may be many ways round that one too. Does it prohibit completely the transfer of stocks and shares owned merely for the purpose of tax avoidance?

Mr. Powell: I have, perhaps rightly, suffered for the sin of quoting a side title in order to save the time of the Committee. If the hon. Gentleman will consult the Section he will find that it prevents the initial transaction upon which the whole avoidance device would rest.
He posited a second case where the taxpayer himself went abroad so as to become non-resident and thus not liable to pay Income Tax upon his dividends from an O.T.C. It is true that a person who renders himself non-resident can avoid United Kingdom Income Tax on any income arising outside the United Kingdom, and consequently, if one accepts my earlier logic, upon income arising from a company treated as non-resident. In the instance which he gave—a certain playwright, who has been mentioned more than once in these debates—of course that playwright escapes United Kingdom Income Tax only upon his non-United Kingdom earnings.
To sum up, I would therefore put it to the Committee that it is consistent with the general effect and purpose of this part of the Bill—and is, indeed, necessary because of our double taxation arrangements—that we should have the provisions in subsection (2). I hope that the hon. Member for Stechford will not think the worse of British registered companies trading overseas because they happen to have a certain number of non-resident shareholders. It was probably

an unintentional hyperbole, but I did not think that they deserved to be described on that account as "companies whose connection with this country is so tenuous as to be almost non-existent."
I think we must treat these overseas trade corporations as a group, and accept the logic of non-resident shareholders in those corporations not paying United Kingdom Income Tax.

Mr. Mitchison: I wonder whether the Financial Secretary would be kind enough to answer a question which puzzles me. Subsection (2) refers to a person not resident in the United Kingdom and it provides for his getting certain refunds of Income Tax. It then has a proviso which reads:
that this subsection shall not apply where the person owning the shares in the Overseas Trade Corporation is
—I omit various words—
resident in the United Kingdom".

Mr. Powell: The hon. and learned Gentleman should not omit those words.

Mr. Mitchison: Very well. I will put them in. It reads:
Provided that this subsection shall not apply where the person owning the shares in the Overseas Trade Corporation is a company which is a subsidiary of a principal company and that principal company—(a) is resident in the United Kingdom….
Would the Financial Secretary explain to me what is contemplated? First of all, we have an overseas trade corporation. Then we have a subsidiary of a principal company. Is the idea that that subsidiary should not be resident in the United Kingdom? Then we have a third person, which is a principal company resident in the United Kingdom. What sort of practical point has the hon. Gentleman in mind? I wish it could be explained because I find it very baffling, and I am not at all certain that I like the provision.

Mr. Powell: The effect of the proviso is this. So far we have been considering a non-resident shareholding company in an overseas trade corporation, but if that non-resident shareholding company were itself the subsidiary—let us say the mere puppet of a United Kingdom company—the practical effect would be that a United Kingdom company or a United Kingdom resident could be drawing the tax-exempt profits of an overseas trade corporation by


drawing them through a non-resident shareholder. It is to prevent this method of avoidance that the case where the non-resident company is a subsidiary of the United Kingdom principal is ruled out.

Mr. Mitchison: Is not that altogether too easy?—It depends finally on the dummy company the Financial Secretary knows what I mean—being the subsidiary. Supposing that two or three companies, perhaps engaged in a similar trade, have a dummy company of this sort; it is not a subsidiary of any one of them and they will accordingly be able to extract tax-free income although it is not intended that they should. I say that it is not intended that they should because if it were the subsidiary of one of them they would not get it. But all they have to do is to combine, the three of them, and to put up a dummy between them, and they will get the benefit. I should like to know what is the answer to that. I expect that there is one.

Mr. Powell: I will certainly pursue that point.

Amendment negatived.

Mr. Powell: I beg to move in page 19, line 9, to leave out from "Kingdom" to the end of line 10.
This point follows on directly from that which I have been discussing with the hon. and learned Member for Kettering (Mr. Mitchison). It is necessary that the case of a United Kingdom resident principal company should be ruled out even where that United Kingdom principal company is itself an overseas trade corporation. There need be no connection between this overseas trade corporation and the original overseas trade corporation from whose trading profits the dividends are drawn. There is no reason why a United Kingdom company which happens to be an overseas trade corporation on other grounds should profit by the avoidance device, which the proviso is intended to prevent, more than any other kind of United Kingdom company. It is for that reason that the words are required out of the subsection.

Mr. Mitchison: That appears to follow, but the extreme complexity of these arrangements confirms my suspicions that evasion will prove to be only too easy.

Amendment agreed to.

Mr. Stevens: I beg to move, in page 19, line 15, at the end to insert:
and that subsection as so applied to dividends on shares owned by an Overseas Trade Corporation shall have effect as if the proviso were omitted".
This is an extremely difficult Amendment to move shortly and clearly. The purpose of the Clause as it stands is to ensure that if a dividend is paid out of untaxed profits to a shareholder who is not resident in the United Kingdom and if there is deduction of tax, the non-resident shareholder shall be entitled to repayment of Income Tax. However, we have just been discussing the proviso in subsection (2) which has now been amended by the omission of paragraph (b).
The situation now arises that where an overseas trade corporation has more than one subsidiary company, each of which is an overseas trade corporation, but where the parent company of the parent O.T.C. is not itself an overseas trade corporation, then that parent company of the string of overseas trade corporations will not, as the Bill is drafted, be able to reclaim the tax deducted from the dividends.
I do not think that that follows through the entire intention of this part of the Bill. It seems to cut across the intention which is apparent in the Bill. In such a case one O.T.C. should be able to switch funds to another O.T.C., and the Amendment puts that detail right. I hope that the Amendment is as clear to the Committee as I hope it is to me.

Mr. Powell: These words are, in fact, necessary for the reason my hon. Friend has given, and I recommend the Committee to insert them.

Mr. Mitchison: I wish that the Financial Secretary would be a little more explicit. I listened very carefully, but I am afraid that with my limited intelligence I did not see why the words were necessary and I am somewhat afraid that there may be other people who will not see why they are necessary. What is the real reason for inserting these words? They seem to amount to this, that the subsection as applied to dividends on shares owned by an overseas trade corporation shall have effect as if the proviso were omitted. What is the difference between putting these words in and leaving them out?

Mr. Powell: The position is that there is a grandparent company which is registered in the United Kingdom, but which is not an overseas trade corporation; there is a parent company which is an overseas trading corporation and a child company which is an overseas trade corporation.
8.45 p.m.
What we want to make possible is transfers of funds without liability to United Kingdom Income Tax between the parent company and the children O.T.C.s, and the fact that they happen to have a grandparent which is not an overseas trading corporation, that is to say, a principal company resident in the United Kingdom, is no reason why they should be excluded in that case from the benefits of switching funds. It is because the proviso to subsection (2), as that subsection is applied by subsection (3), would cut out this process in the case where there happens to be a non-O.T.C. resident grandparent company that these words are necessary.

Mr. Mitchison: This sounds to me a very queer family, and the more I hear about it, the queerer it sounds. I see the point, but it seems to me, on the other hand, to be something that is open to a good deal of misuse. I cannot see why this string of companies should be treated in this special way, or that there is any real need for this proviso, but there it is, and we leave it at that. We shall have to consider afterwards what this subsection looks like as a whole with these Amendments, and we may have to revert to it at a later stage.

Amendment agreed to.

Clause, as amended, ordered to stand part of the Bill.

Clause 24.—(INCOME TAX CHARGE IN RESPECT OF EXEMPT TRADING INCOME IN OTHER CASES.)

Motion made, and Question proposed, That the Clause stand part of the Bill.

Mr. Mitchison: We are in a little procedural difficulty here. We cannot, of course, at this stage discuss the Sixth Schedule, and this Clause does no more

than incorporate it in the Bill, but we do not like the Sixth Schedule. We have quite a number of objections to it, and we therefore do not propose to allow this Clause to pass without taking a vote on it in order to register in anticipation the objections which we are going to make to the Sixth Schedule when we come to it.

Mr. Chapman: I want to say how very glad I was to hear my hon. and learned Friend the Member for Kettering (Mr. Mitchison) say that. I saw an expression of surprise on the face of the Financial Secretary, and I suppose he is thinking that because the Sixth Schedule to which I will not refer in detail, makes grants or loans to individuals liable to tax and deals with distributions on winding-up and so on, he is surprised that we should be voting against it.
I want to tell the hon. Gentleman that one of the things that annoys us intensely, for example, is that Surtax is going to be excluded on winding-up. Further on, when we come to other provisions, we find that certainly Profits Tax is excluded. Thirdly, and much more important than the other two, I do not believe that the provisions of the Sixth Schedule are at all watertight. I do not want to be out of order by discussing them now, but when we have to go into something like four and a half pages of close type in a Parliamentary Bill in order to put in some anti-avoidance provisions, it makes us realise how very complex the matter is, and how easy evasion is probably going to be for the people who specialise in that sort of thing. When we come to discuss the Sixth Schedule we shall have some suggestions to make as to how that evasion is likely to take place. The very complexity shows how difficult it is to check all these loopholes. I rose only to say how surprised I was to see the Financial Secretary register shock when we said that we would divide. There are very good reasons why we should do so.

Question put, That the Clause stand part of the Bill:—

The Committee divided: Ayes 227. Noes 176.

Division No. 150.]
AYES
[8.51 p.m.


Agnew, Sir Peter
Amory, Rt. Hn. Heathcoat (Tiverton)
Atkins, H. E.


Aitken, W. T.
Arbuthnot, John
Baldock, Lt.-Cmdr. J. M.


Allan, R. A. (Paddington, S.)
Armstrong, C. W.
Baldwin, A, E.


Amery, Julian (Preston, N.)
Ashton, H.
Balniel, Lord




Barber, Anthony
Heath, Rt. Hon. E. R. G.
Orr-Ewing, Charles Ian (Hendon, N.)


Barlow, Sir John
Henderson, John (Cathcart)
Osborne, C.


Barter, John
Henderson-Stewart, Sir James
Page, R. G.


Baxter, Sir Beverley
Hesketh, R. F.
Pannell, N. A. (Kirkdale)


Bell, Philip (Bolton, E.)
Hicks-Beach, Maj, W. W.
Partridge, E.


Bell, Ronald (Bucks, S.)
Hill, Rt. Hon. Charles (Luton)
Peyton, J. W. W.


Bidgood, J. C.
Hill, Mrs. E. (Wythenshawe)
Pickthorn, K. W. M.


Birch, Rt. Hon. Nigel
Hill, John (S. Norfolk)
Pike, Miss Mervyn


Bishop, F. P.
Hirst, Geoffrey
Pilkington, Capt. R. A.


Black, C. W.
Holland-Martin, C. J.
Pitt, Miss E. M.


Body, R. F.
Holt, A. F.
Pott, H. P.


Bossom, Sir Alfred
Hope, Lord John
Powell, J. Enoch


Bowen, E. R. (Cardigan)
Hornby, R. P.
Price, Henry (Lewisham, W.)


Boyd-Carpenter, Rt. Hon. J. A.
Hornsby-Smith, Miss M. P.
Profumo, J. D.


Braine, B. R.
Horobin, Sir Ian
Raikes, Sir Victor


Brooman-White, R. C.
Howard, Hon. Greville (St. Ives)
Ramsden, J. E.


Bryan, P.
Howard, John (Test)
Rawlinson, Peter


Bullus, Wing Commander E. E.
Hudson, W. R. A. (Hull, N.)
Redmayne, M.


Burden, F. F. A.
Hughes Hallett, Vice-Admiral J.
Rees-Davies, W. R.


Butler, Rt. Hn. R. A. (Saffron Walden)
Hughes-Young, M. H. C.
Remnant, Hon. P,


Carr, Robert
Hurd, A. R.
Renton, D. L. M.


Cary, Sir Robert
Hutchison, Michael Clark (E'b'gh, S.)
Ridsdale, J. E.


Channon, Sir Henry
Hutchison, Sir Ian Clark (E'b'gh, W.)
Rippon, A. G. F.


Chichester-Clark, R.
Hutchison, Sir James (Scotstoun)
Robinson, Sir Roland (Blackpool, S.)


Clarke, Brig. Terence (Portsmth, W.)
Hylton-Foster, Rt. Hon. Sir Harry
Rodgers, John (Sevenoaks)


Cooke, Robert
Iremonger, T. L.
Roper, Sir Harold


Cordeaux, Lt.-Col. J. K.
Irvine, Bryant Godman (Rye)
Ropner, Col. Sir Leonard


Corfield, Capt. F. V.
Jenkins, Robert (Dulwich)
Russell, R, S.


Craddock, Beresford (Spelthorne)
Jennings, J. C. (Burton)
Schofield, Lt.-Col. W.


Crowder, Sir John (Finchley)
Johnson, Dr. Donald (Carlisle)
Scott-Miller, Cmdr. R.


Crowder Petre (Ruislip—Northwood)
Johnson, Eric (Blackley)
Sharples, R. C.


Cunningham, Knox
Joynson-Hicks, Hon. Sir Lancelot
Shepherd, William


Currie, G. B. H.
Keegan, D.
Simon, J. E. S. (Middlesbrough, W.)


Dance, J. C. C.
Kerby, Capt. H. B.
Smithers, Peter (Winchester)


Davidson, Viscountess
Kerr, Sir Hamilton
Smyth, Brig. Sir John (Norwood)


Davies, Rt. Hn. Clement (Montgomery)
Kershaw, J. A.
Spearman, Sir Alexander


D'Avigdor-Goldsmid, Sir Henry
Kimball, M.
Spence, H. R. (Aberdeen, W.)


Deedes, W. F.
Kirk, P. M.
Spens, Rt. Hn. Sir P. (Kens'gt'n, S.)


Dodds-Parker, A. D.
Lagden, G. W.
Stanley, Capt. Hon. Richard


Doughty, C. J. A.
Leather, E. H. C.
Stevens, Geoffrey


Drayson, G. B.
Leavey, J. A.
Steward, Harold (Stockport, S.)


du Cann, E. D. L.
Legge-Bourke, Maj. E. A. H.
Storey, S.


Dugdale, Rt. Hn. Sir T. (Richmond)
Legh, Hon. Peter (Petersfield)
Studholme, Sir Henry


Eden, J. B. (Bournemouth, West)
Lindsay, Hon. James (Devon, N.)
Summers, Sir Spencer


Elliott. R. W. (N'castle upon Tyne, N.)
Lindsay, Martin (Solihull)
Sumner, W. D. M. (Orpington)


Errington, Sir Eric
Lloyd, Maj. Sir Guy (Renfrew, E.)
Taylor, Sir Charles (Eastbourne)


Farey-Jones, F. W.
Lucas, P. B. (Brentford &amp; Chiswick)
Teeling, W.


Fell, A.
Lucas-Tooth, Sir Hugh
Temple, John M.


Fletcher-Cooke, C.
McAdden, S. J.
Thomas, Leslie (Canterbury)


Foster, John
Macdonald, Sir Peter
Thompson, Kenneth (Walton)


Fraser, Sir Ian (M'cmbe &amp; Lonsdale)
Mackeson, Brig. Sir Harry
Thompson, Lt.-Cdr. R. (Croydon, S.)


Freeth, Denzil
Mackie, J. H. (Galloway)
Thorneycroft, Rt. Hon. P.


Gammans, Lady
McLaughlin, Mrs. P.
Thornton-Kemsley, C. N.


Garner-Evans, E. H.
Maclean, Fitzroy (Lancaster)
Tilney, John (Wavertree)


George, J. C. (Pollok)
McLean, Neil (Inverness)
Turton, Rt. Hon. R. H.


Glover, D.
Macmillan, Maurice (Halifax)
Tweedsmuir, Lady


Gomme-Duncan, Col. Sir Alan
Macpherson, Niall (Dumfries)
Vane, W. M. F.


Goodhart, Philip
Maddan, Martin
Vaughan-Morgan, J. K.


Gower, H. R.
Maitland, Cdr. J. F. W. (Horncastle)
Vickers, Miss Joan


Graham, Sir Fergus
Maitland, Hon. Patrick (Lanark)
Wade, D. W.


Grant, W. (Woodside)
Manningham-Buller, Rt. Hon. Sir R.
Wakefield Edward (Derbyshire, W.)


Grant-Ferris, Wg Cdr. R. (Nantwich)
Markham, Major Sir Frank
Wall, Major Patrick


Green, A.
Marshall, Douglas
Ward, Rt. Hon. C. R. (Worcester)


Grimston, Sir Robert (Westbury)
Mathew, R.
Ward, Dame Irene (Tynemouth)


Grosvenor, Lt.-Col. R. G.
Maudling, Rt. Hon. R.
Webbe, Sir H.


Gurden, Harold
Mawby, R. L.
Whitelaw, W. S. I.


Hall, John (Wycombe)
Maydon, Lt.-Comdr. S. L. C.
Williams, Paul (Sunderland, S.)


Harris, Frederic (Croydon, N.W.)
Milligan, Rt. Hon. W. R.
Wills, G. (Bridgwater)


Harris, Reader (Heston)
Mott-Radclyffe, Sir Charles
Woollam, John Victor


Harrison, Col. J. H. (Eye)
Nabarro, G. D. N.



Harvey, Sir Arthur Vere (Macclesfd)
Neave, Airey
TELLERS FOR THE AYES:


Harvey, John (Walthamstow, E.)
Nicolson, N. (B'n'm'th, E. &amp; Chr'ch)
Mr. Oakshott and Mr. Finlay.


Heald, Rt. Hon. Sir Lionel
Nugent, G. R. H.





NOES


Ainsley, J. W.
Baird, J.
Blyton, W. R.


Allaun, Frank (Salford, E.)
Benn, Hn. Wedgwood (Bristol, S.E.)
Boardman, H.


Allen, Arthur (Bosworth)
Benson, G.
Bottomley, Rt. Hon. A. G.


Allen, Scholefield (Crewe)
Beswick, Frank
Bowden, H. W. (Leicester, S.W.)


Awbery, S. S.
Blackburn, F.
Bowles, F. G.


Bacon, Miss Alice
Blenkinsop, A.
Boyd, T. C.







Brockway, A. F.
Janner, B.
Price, J. T. (Westhoughton)


Brown, Thomas (Ince)
Jay, Rt. Hon. D. P. T.
Price, Philips (Gloucestershire, W.)


Burton, Miss F. E.
Jeger, Mrs. Lena (Holbn &amp; St. Pncs. S.)
Probert, A. R.


Champion, A. J.
Jenkins, Roy (Stechford)
Proctor, W. T.


Chapman, W. D.
Johnson, James (Rugby)
Pryde, D. J.


Clunie, J.
Jones, Rt. Hon. A. Creech (Wakefield)
Randall, H. E.


Coldrick. W.
Jones, David (The Hartlepools)
Rankin, John


Collick, P. H. (Birkenhead)
Jones, Jack (Rotherham)
Redhead, E. C.


Collins, V. J. (Shoreditch &amp; Finsbury)
Jones, J. Idwal (Wrexham)
Rhodes, H,


Corbet, Mrs. Freda
Jones, T. W. (Merioneth)
Roberts, Goronwy (Caernarvon)


Cove, W. G.
Kenyon, C.
Rogers, George (Kensington, N.)


Craddock, George (Bradford, S.)
Key, Rt. Hon. C. W.
Ross, William


Cronin, J. D.
King, Dr. H. M.
Royle, C.


Crossman, R. H. S.
Lawson, G. M.
Short, E. W.


Davies, Harold (Leek)
Ledger, R. J.
Skeffington, A. M.


Deer, G.
Lee, Frederick (Newton)
Slater, Mrs. H. (Stoke, N.)


de Freitas, Geoffrey
Lee, Miss Jennie (Cannock)
Slater, J. (Sedgefield)


Delargy, H. J.
Lewis, Arthur
Sorensen, R. W.


Dodds, N. N.
Lindgren, G. S
Soskice, Rt. Hon. Sir Frank


Dugdale, Rt. Hn. John (W. Brmwch)
Logan, D. G.
Sparks, J. A.


Edelman, M.
MacColl, J. E.
Steele, T.


Edwards, Rt. Hon. John (Brighouse)
McInnes, J.
Stewart, Michael (Fulham)


Evans, Albert (Islington, S.W.)
McKay, John (Wallsend)
Stonehouse, John


Fernyhough, E.
MacMillan, M. K. (Western Isles)
Stones, W. (Consett)


Flenburgh, W.
MacPherson, Malcolm (Stirling)
Strachey, Rt. Hon. J.


Fletcher, Eric
Mahon, Simon
Swingler, S. T.


Fraser, Thomas (Hamilton)
Mallalieu, E. L. (Brigg)
Sylvester, G. O.


Gaitskell, Rt. Hon. H. T. N.
Mann, Mrs. Jean
Taylor, John (West Lothian)


Gibson, C. W.
Marquand, Rt. Hon. H. A.
Thomson, George (Dundee, E.)


Gooch, E. C.
Mellish, R. J.
Thornton, E.


Gordon Walker, Rt. Hon. P. C.
Messer, Sir F.
Tomney, F.


Greenwood, Anthony
Mikardo, Ian
Ungoed-Thomas, Sir Lynn


Grey, C. F.
Mitchison, G. R.
Viant, S. P.


Griffiths, David (Rother Valley)
Monslow, W.
Warbey, W. N.


Griffiths, Rt. Hon. James (Llanelly)
Moody, A. S.
Wells, Percy (Faversham)


Hale, Leslie
Morris, Percy (Swansea, W.)
West, D. G.


Hall, Rt. Hn. Glenvil (Colne Valley)
Moyle, A.
Wheeldon, W. E.


Hamilton, W. W.
Mulley, F. W.
White, Mrs. Eirene (E. Flint)


Hastings, S.
Noel-Baker, Rt. Hon. P. (Derby, S.)
White, Henry (Derbyshire, N.E.)


Hayman, F. H.
Oliver, G. H.
Wilcock, Group Capt. C. A. B.


Healey, Denis
Oram, A. E.
Wilkins, W. A.


Henderson, Rt. Hn. A. (Rwly Regis)
Orbach, M.
Willey, Frederick


Hobson, C. R. (Keighley)
Oswald, T.
Williams, Rev. Llywelyn (Ab'tillery)


Holmes, Horace
Padley, W. E.
Williams, Ronald (Wigan)


Houghton, Douglas
Palmer, A. M. F.
Williams, Rt. Hon. T. (Don Valley)


Howell, Charles (Perry Barr)
Pannell, Charles (Leeds, W.)
Williams, W. R. (Openshaw)


Hughes, Cledwyn (Anglesey)
Pargiter, G. A.
Willis, Eustace (Edinburgh, E.)


Hughes, Emrys (S. Ayrshire)
Parker, J.
Wilson, Rt. Hon. Harold (Huyton)


Hughes, Hector (Aberdeen, N.)
Parkin, B. T.
Winterbottom, Richard


Hunter, A. E.
Peart, T. F.
Woof, R. E.


Hynd, H. (Accrington)
Pentland, N.
Yates, V. (Ladywood)


Hynd, J. B. (Attercliffe)
Popplewell, E.



Irving, Sydney (Dartford)
Prentice, B. E.
TELLERS FOR THE NOES: 




Mr. Pearson and Mr. Simmons.

Clause Ordered to stand part of the Bill.

Clause 25 Ordered to Stand part of the Bill

Clause 26.—(EXEMPTION OF TRADING INCOME FROM THE PROFITS TAX.)

9.0 p.m.

Mr. Powell: I beg to move, in page 21, line 12, at the end to insert:
(3) Where in computing for the purposes of the profits tax the profits from a trade or business carried on by any person there is to be included a dividend or a part of a dividend which is to be so regarded as paid out of exempt trading income, then for the purposes of Part XIII of the Income Tax Not, 1952, as it applies for the allowance of credit against the profits tax such part, if any, of the taxes falling to be taken into account under the last foregoing section in the allowance of credit against income tax chargeable by reference to that exempt trading income as remains after the allowance of credit against that income tax

shall be deemed to have been paid by that person in respect of profits of which the dividend, or the part of the dividend, represents the amount remaining after payment of the said part of the taxes.

The Deputy-Chairman (Major Sir William Anstruther-Gray): This Amendment can be considered with the following Amendment to page 21, line 12, in the name of the hon. Member for Langstone (Mr. Stevens).

Mr. Powell: This Amendment deals with the case of a United Kingdom company which is not an overseas trade corporation and is a shareholder in an overseas trade corporation. In the normal case a United Kingdom company drawing dividends from a United Kingdom company trading overseas would get the benefit of credit for foreign tax both against


Income Tax and against Profits Tax paid by the other company. Where, however, the United Kingdom company trading overseas is an overseas trade corporation, that overseas trade corporation is exempt by reason of the provisions of Part IV from Profits Tax, but the company drawing the dividend will have to pay the profits tax instead.
The effect, therefore, would be that apart from the Amendment the non-O.T.C. shareholding company would be unable to obtain credit against its Profits Tax for any foreign tax still outstanding after it had been applied against the Income Tax payable on the dividend by the overseas trade corporation. In other words, this is to enable a United Kingdom company which receives a dividend to be in the same position when it receives a dividend from an O.T.C. as it would have been had that company not been an overseas trade corporation. It still secures that there will be credit against United Kingdom Profits Tax for any outstanding foreign tax for which credit has not been allowed.

Mr. Mitchison: Not for the first time is Pelion put on Ossa, but in this case that seems to be logical. We do not necessarily accept the position about Profits Tax, but that will not really arise under this Amendment.

Mr. Stevens: I only rise to thank my hon. Friend the Financial Secretary. When I read the Bill there seemed quite clearly to be an anomaly here and I am grateful to his right hon. Friend and mine for recognising an anomaly and taking steps to put it right.

Amendment agreed to.

Motion made, and Question proposed, That the Clause, as amended, stand part of the Bill.

Mr. Jay: This is a rather important Clause which carries out the major reduction in Profits Tax which the Chancellor is making. I should like, briefly, to make clear why we on this side of the Committee still have some doubts about the main purpose of this Clause.
Hon. Members opposite have rather taken the line throughout these debates that the Chancellor is making some reduction in taxation of profits. They think any reduction in taxation of profits is a

good thing and, therefore, are all in favour of it without inquiring too carefully into what he is doing. What he is really doing is to give this substantial concession of £35 million—a big part of which is through Profits Tax—to a certain group of companies, and just because he is deciding to give the concession in this way it follows that other companies and other taxpayers will have to pay more. I see the right hon. and learned Member for Kensington, South (Sir P. Spens) shaking his head. It is no good his doing that. As a matter of logic, unless this action in some other way increases the revenue available, and nobody has argued that it does, what I say must be true.

Sir P. Spens: That is the whole difference between us. All the way through our discussions right hon. and hon. Members opposite have assumed that no good whatever will follow from the increase in trade resulting from these Clauses. My hon. Friends and I take the view that a great deal of extra revenue will come. The argument of hon. Gentlemen opposite is a fallacy which has been put forward dozens of times.

Mr. Jay: The Chancellor makes the same assumptions as we do, because he has not allowed in his Budget for any increased revenue resulting from this change. The only logical assumption—

Sir P. Spens: It will not be immediate; it will come in the future.

Mr. Jay: —is that the Chancellor has taken a decision—it is legitimate if he thinks it is right—that this relief shall be concentrated in this way.
The Chancellor's argument, often repeated, is that it is necessary to put the firms trading overseas on a level with their competitors. Incidentally, he and the Financial Secretary have used a slightly different argument when we have asked who are the competitors. The Chancellor told us that they are foreign companies competing with British firms in these territories. The Financial Secretary told us that they are subsidiaries of British companies which are non-resident in the areas concerned. It is not quite the same argument, but no doubt the Chancellor could say that the British companies will be in competition with both.
I do not think that we have sufficiently carefully analysed what is supposed to be


the competitive disadvantage from which British companies are at present suffering. It is alleged that they are paying higher taxation. That does not mean that their costs are not the same and that they are not selling at the same competitive price as the firms with which they are competing. So far as we know, and so far as the argument goes, they are on a level in terms of costs and prices. All that is alleged is that out of the profits made a rather larger share is taken by the British Exchequer than by the treasury authorities of other countries.
What this amounts to is an argument that these firms should be enabled to build up capital tax free and to finance their expansion by that method rather than by borrowing, subject to interest payments, from outside. I agree with the Chancellor that to this extent, if they are unable to expand interest free, they are at a disadvantage compared with competitors paying a much lower rate of taxation. What seems to us to he curious about the concession is that that argument could be applied equally well to a British firm manufacturing in this country and exporting all over the world in competition with all sorts of other companies. I think that the right hon. and learned Member for Kensington, South would agree that it could be used by a company manufacturing in the United Kingdom and competing here with goods imported from a firm in Japan, the United States or Germany.
Therefore, if the Chancellor's argument really is that it is unfair that a British firm should not be able to build up new capital interest free when its competitor is able to do so, it does not seem to me that that argument applies any more forcibly to the companies trading overseas in the same area as their competitors than it does to any British firm which is exporting or is competing with foreign firms in this country or anywhere else in the world. Therefore, I would have thought—and this is really our quarrel with the proposal—that if the Chancellor had decided that he had £35 million to give away—as the Lord Privy Seal used to say, but as the Chancellor now says we must not say—it would have been better and fairer to have concentrated the relief, or the assistance, or whatever it is called, over the whole field of industry which, by and large, is competing with foreign firms either in the home market

or in exports in one part of the world or another.
I ask the Committee to recognise that what the Chancellor has decided to do is to concentrate the £35 million in this way on this rather narrowly, as it seems to me, and arbitrarily chosen group of firms. He could have taken another decision. He could have decided to use this relief to re-establish the investment allowance over the whole field of British industry. That would have had two advantages. First, it would have encouraged investment at home—which is something that we want—as well as investment abroad. Secondly, the investment allowance has the great merit over this other method that the Exchequer relinquishes revenue only when the firm actually carries out investment in new productive assets. If the Chancellor adopts the present method, a firm gets the relief even though it may use the undistributed profits to invest in securities and not in any expansion of productive capacity at all.
For both those reasons, I should have thought it could have been strongly argued that it would have been better to re-introduce the investment allowance rather than to take this rather special and arbitrary measure. It is for those reasons that we are still unconvinced—given that there was this sum of money to use as a stimulus or a shot in the arm, or whatever the Chancellor likes to call it, to British overseas trade—that this was the best and most economic use to make of it.

Mr. Birch: I do not think that I will follow the right hon. Gentleman the Member for Battersea, North (Mr. Jay) into all the various permutations and combinations of the way in which the money which is available for tax reliefs might have been used. He started his speech by saying that if this tax remission were made, other people would have to pay more, but what we have to look at is the difference between the short run and the long run.
Clearly, as was announced in the Budget, in the short-run this will cost money. We believe that, in the long run, it will bring money in. We are, as it were, casting our bread upon the waters, and we think that it will return to us after not too many days—

Mr. Jay: To complete that argument, could the right hon. Gentleman just tell us in what form this money is to flow back to the Exchequer?

Mr. Birch: It will flow back through the increase in our exports, as we believe, and the profits overseas which will, in the long run, be distributed here.
The right hon. Gentleman sought to show that there was a difference between my right hon. Friend the Chancellor and my hon. Friend the Financial Secretary as to whom the remission was enabling firms to compete with. Clearly, the answer is both, as he suggested. It will enable the British-registered company to compete better both with the foreign companies and with British companies registered overseas. As we have several times stated, one of the objects of the exercise is to retain companies registered here so far as we can, because we believe that in the long run—and in the short run, for that matter—it is better for our exports.
The right hon. Gentleman went on to cast some doubt on the proposition that the competitive power of these overseas trade corporations might be improved by the taxation reliefs they had. I must say that that was not the argument put in an earlier debate on the Free Trade Area. What is certainly true, as he went on to show, is that it does enable companies, as is the object, to build up their reserves more easily. Therefore, not in the short run but in the long run, it does enable them to compete more than they would otherwise do.

The right hon. Gentleman then introduced the argument again really, in effect, to say that it would be just as logical to remit taxation on companies operating here as on O.T.Cs. I do not think that that is altogether logical, because a foreign company working here is subject to British taxation. One is comparing like with like, the companies paying the same taxation. What we are seeking to do is to bring about a situation where a British registered company can compete on equal terms with companies abroad paying the taxation which obtains in those countries.

Mr. Jay: If a British company is exporting, for instance, to Italy, and selling there in competition with an Italian firm, and if the Italian firm is paying a lower level of taxation, could not exactly the same argument be used?

Mr. Birch: If I may say so, it is not quite the same thing. Of course, we have an efficient economy here, and it is perfectly true that we can export to countries with lower taxation; that is partly owing to the fact that we are a very highly organised country with very highly skilled labour, and so forth. What I was saying is that we are trying to compare like with like. If one is operating in a country in competition with other firms operating in that country, one ought to be on level terms with them.

Question put, That the Clause, as amended, stand part of the Bill:—

The Committee divided: Ayes 226, Noes 176.

Division No. 151.]
AYES
[9.17 p.m.


Agnew, Sir Peter
Boyd-Carpenter, Rt. Hon. J. A.
Dugdale, Rt. Hn. Sir T. (Richmond)


Aitken, W. T.
Braine, B. R.
Eden, J. B. (Bournemouth, West)


Allan, R. A. (Paddington, S.)
Bullus, Wing Commander E. E.
Elliott, R. W. (N'castle-on-Tyne, N.)


Amery, Julian (Preston, N.)
Burden, F. F. A.
Errington, Sir Eric


Amory, Rt. Hn. Heathcoat (Tiverton)
Cary, Sir Robert
Farey-Jones, F. W.


Arbuthnot, John
Channon, Sir Henry
Fell, A.


Armstrong, C. W.
Chichester-Clark, R.
Finlay, Graeme


Ashton, H.
Clarke, Brig. Terence (Fortsmth, W.)
Fletcher-Cooke, C.


Atkins, H. E.
Cooke, Robert
Foster, John


Baldock, Lt.-Cmdr. J. M.
Cordeaux, Lt.-Col. J. K.
Fraser, Sir Ian(M'cmbe &amp; Lonsdale)


Baldwin, A. E.
Corfield, Capt. F. V.
Freeth, Denzil


Balniel, Lord
Craddock, Beresford (Spelthorne)
Gammans, Lady


Barber, Anthony
Crowder, Sir John (Finchley)
Garner-Evans, E. H.


Barlow, Sir John
Crowder, Petre (Ruislip—Northwood)
George, J. C. (Pollok)


Barter, John
Cunningham, Knox
Glover, D.


Baxter, Sir Beverley
Currie, G. B. H.
Gomme-Duncan, Col. Sir Alan


Bell, Philip (Bolton, E.)
Danoe, J. C. G.
Goodhart, Philip


Bell, Ronald (Bucks, S.)
Davidson, Viscountess
Gower, H. R.


Bidgood, J. C.
Davies, Rt. Hon. Clement (Montgomery)
Graham, Sir Fergus


Birch, Rt. Hon. Nigel
D'Avigdor-Goldsmid, sir Henry
Grant, W. (Woodside)


Bishop, F. P.
Deedes, W. F.
Grant-Ferris, Wg Cdr. R.(Nantwich)


Black, C. W.
Dodds-Parker, A. D.
Green, A.


Body, R. P.
Doughty. C. J. A.
Grimston, Sir Robert (Westbury)


Bossom, Sir Alfred
Drayson G. B.
Grosvenor, Lt.-Col. R. G.


Bowen, E. R. (Cardigan)
du Cann, E. D. L.
Gurden, Harold




Hall, John (Wycombe)
Lindsay, Martin (Solihull)
Renton, D. L. M.


Harris, Frederic (Croydon, N.W.)
Lloyd, Maj. Sir Guy (Renfrew, E.)
Ridsdale, J. E.


Harris, Reader (Heston)
Lucas, P. B. (Brentford A Chiswick)
Rippon, A. G. F.


Harrison, Col. J. H. (Eye)
Lucas-Tooth, Sir Hugh
Robinson, Sir Roland (Blackpool, S.)


Harvey, Sir Arthur Vere (Macclesfd)
McAdden, S. J.
Rodgers, John (Sevenoaks)


Harvey, John (Walthamstow, E.)
Macdonald, Sir Peter
Roper, Sir Harold


Heald, Rt. Hon. Sir Lionel
Mackeson, Brig. Sir Harry
Ropner, Col. Sir Leonard


Heath, Rt. Hon. E. R. G.
Mackie, J. H. (Galloway)
Russell, R. S.


Henderson, John (Cathcart)
McLaughlin, Mrs. P.
Schofield, Lt.-Col. W.


Henderson-Stewart, Sir James
Maclean, Fitzroy (Lancaster)
Scott-Miller, Cmdr. R.


Hesketh, R. F.
McLean, Neil (Inverness)
Sharples, R. C.


Hicks-Beach, Maj. W. W.
Macleod, Rt. Hn. Iain (Enfield, W.)
Shepherd, William


Hill, Rt. Hon. Charles (Luton)
Macmillan, Maurice (Halifax)
Simon, J. E. S. (Middlesbrough, W.)


Hill, Mrs. E. (Wythenshawe)
Macpherson, Niall (Dumfries)
Smithers, Peter (Winchester)


Hill, John (S. Norfolk)
Maddan, Martin
Smyth, Brig. Sir John (Norwood)


Hirst, Geoffrey
Maitland, Cdr. J. F. W.(Horncastle)
Spearman, Sir Alexander


Holland-Martin, C, J.
Maitland, Hon. Patrick (Lanark)
Spence, H. R. (Aberdeen, W.)


Holt, A. F.
Manningham-Buller, Rt. Hn. Sir R.
Spens, Rt. Hn. Sir P. (Kens'gt'n, S.)


Hope, Lord John
Markham, Major Sir Frank
Stanley, Capt. Hon. Richard


Hornby, R. P,
Marshall, Douglas
Stevens, Geoffrey


Hornsby-Smith, Miss M. P.
Mathew, R.
Steward, Harold (Stockport, S.)


Horobin, Sir Ian
Maudling, Rt. Hon. R.
Storey, S.


Howard, Hon. Greville (St. Ives)
Mawby, R. L.
Studholme, Sir Henry


Howard, John (Test)
Maydon, Lt.-Comdr. S. L. C.
Summers, Sir Spencer


Hudson, W. R. A. (Hull, N.)
Milligan, Rt. Hon. W. R.
Sumner, W. D. M. (Orpington)


Hughes Hallett, Vice-Admiral J.
Mott-Radclyffe, Sir Charles
Taylor, Sir Charles (Eastbourne)


Hughes-Young, M. H. C.
Nabarro, G, D. N.
Teeling, W.


Hurd, A. R.
Neave, Airey
Temple, John M.


Hutchison, Michael Clark (E'b'gh, S.)
Nicolson, N. (B'n'm'th, E. &amp; Chr'ch)
Thomas, Leslie (Canterbury)


Hutchison, Sir Ian Clark (E'b'gh, W.)
Nugent, G. R. H.
Thompson, Kenneth (Walton)


Hutchison, Sir James (Scotstoun)
Oakshott, H. D.
Thompson, Lt.-Cdr. R. (Croydon, S.)


Hylton-Foster, Rt. Hon. Sir Harry
Orr-Ewing, Charles Ian (Hendon, N.)
Thorneycroft, Rt. Hon. P.


Iremonger, T. L.
Osborne, C.
Thornton-Kemsley, C. N.


Irvine, Bryant Godman (Rye)
Page, R. G.
Tilney, John (Wavertree)


Jenkins, Robert (Dulwich)
Panned, N. A. (Kirkdale)
Turton, Rt. Hon. R. H.


Jennings, J. C. (Burton)
Partridge, E.
Tweedsmuir, Lady


Johnson, Dr. Donald (Carlisle)
Peyton, J. W. W.
Vane, W. M. F.


Johnson, Eric (Blackley)
Pickthorn, K. W. M.
Vaughan-Morgan, J. K.


Joynson-Hicks, Hon. Sir Lancelot
Pike, Miss Mervyn
Vickers, Miss Joan


Keegan, D.
Pilkington, Capt. R. A.
Wade, D. W.


Kerby, Capt. H. B.
Pitt, Miss E. M.
Wakefield, Edward (Derbyshire, W.)


Kerr, Sir Hamilton
Pott, H. P.
Wall, Major Patrick


Kershaw, J. A.
Powell, J. Enoch
Ward, Rt. Hon. G. R. (Worcester)


Kimball, M.
Price, Henry (Lewisham, W.)
Ward, Dame Irene (Tynemouth)


Kirk, P. M.
Profumo, J. D.
Webbe, Sir H.


Lagden, G. W.
Raikes, Sir Victor
Whitelaw, W. S. I.


Leather, E. H. C.
Ramsden, J. E.
Williams, Paul (Sunderland)


Leavey, J. A.
Rawlinson, Peter
Wills, G. (Bridgwater)


Legge-Bourke, Maj. E. A. H.
Redmayne, M.
Woollam, John Victor


Legh, Hon. Peter (Petersfield)
Rees-Davies, W. R.
TELLERS FOR THE AYES:


Lindsay, Hon. James (Devon, N.)
Remnant, Hon. P.
Mr. Bryan and Mr. Brooman-White.




NOES


Ainsley, J. W.
Corbet, Mrs. Freda
Hamilton, W. W.


Allaun, Frank (Salford, E.)
Cove, W. G.
Hastings, S.


Allen, Arthur (Bosworth)
Craddock, George (Bradford, S.)
Hayman, F. H.


Allen, Scholefield (Crewe)
Cronin, J. D.
Healey, Denis


Awbery, S. S.
Crossman, R. H. S.
Henderson, Rt. Hn. A. (Rwly Regis)


Bacon, Miss Alice
Davies, Harold (Leek)
Hobson, C. R. (Keighley)


Baird, J.
Deer, G.
Holmes, Horace


Benn, Hn. Wedgwood (Bristol, S.E.)
de Freitas, Geoffrey
Houghton, Douglas


Benson, G.
Delargy, H. J.
Howell, Charles (Perry Barr)


Beswick, Frank
Dodds, N. N.
Hughes, Cledwyn (Anglesey)


Blackburn, F.
Dugdale, Rt. Hn. John (W. Brmwch)
Hughes, Emrys (S. Ayrshire)


Blenkinsop, A.
Edelman, M.
Hughes, Hector (Aberdeen, N.)


Blyton, W. R.
Edwards, Rt. Hon. John (Brighouse)
Hunter, A. E.


Boardman, H.
Evans, Albert (Islington, S.W.)
Hynd, H. (Accrington)


Bottomley, Rt. Hon. A. G.
Fernyhough, E.
Hynd, J. B. (Attercliffe)


Bowden, H. W. (Leicester, S. W.)
Fienburgh, W.
Irving, Sydney (Dartford)


Bowles, F. G.
Fletcher, Eric
Janner, B.


Boyd, T. C.
Fraser, Thomas (Hamilton)
Jay, Rt. Hon. D. P. T.


Brookway, A. F.
Caitskell, Rt. Hon. H. T. N.
Jeger, Mrs. Lena (Holbn &amp; St. Pncs, S.)


Brown, Thomas (Ince)
Gibson, C. W.
Jenkins, Roy (Stechford)


Burton, Miss F. E.
Gooch, E. G.
Johnson, James (Rugby)


Champion, A. J.
Gordon Walker, Rt. Hon. P. C.
Jones, Rt. Hon. A. Creech (Wakefield)


Chapman, W. D.
Greenwood, Anthony
Jones, David (The Hartlepools)


Chetwynd, G. R.
Grey, C. F.
Jones, J. Idwal (Wrexham)


Clunie, J.
Griffiths, David (Rother Valley)
Jones, T. W. (Merioneth)


Coldrick, W.
Griffiths, Rt. Hon. James (Llanelly)
Kenyon, C.


Collick, P. H. (Birkenhead)
Hale, Leslie
Key, Rt. Hon. C. W.


Collins, V. J.(Shoreditch &amp; Finsbury)
Hall, Rt. Hon. Glenvil (Colne Valley)
King, Dr. H. M.







Lawson, G. M.
Padley, W. E.
Stonehouse, John


Ledger, R. J.
Palmer, A. M. F.
Stones, W. (Consett)


Lee, Frederick (Newton)
Pannell, Charles (Leeds, W.)
Strachey, Rt. Hon. J.


Lee, Miss Jennie (Cannock)
Parker, J.
Swingler, S. T.


Lewis, Arthur
Parkin, B. T.
Sylvester, G. O.


Lindgren, G. S.
Peart, T. F.
Taylor, John (West Lothian)


Logan, D. G.
Pentland, N.
Thomson, George (Dundee, E.)


MacColl, J. E.
Popplewell, E.
Thornton, E.


McInnes, J.
Prentice, R. E.
Tomney, F.


McKay, John (Wallsend)
Price, J. T. (Westhoughton)
Ungoed-Thomas, Sir Lynn


MacMillan, M. K. (Western Isles)
Price, Philips (Gloucestershire, W.)
Viant, S. P.


MacPherson, Malcolm (Stirling)
Probert, A. R.
Warbey, W. N.


Mahon, Simon
Proctor, W. T.
Wells, Percy (Faversham)


Mallalieu, E. L. (Brigg)
Pryde, D. J.
West, D. G.


Mann, Mrs. Jean
Randall, H. E.
Wheeldon, W. E.


Marquand, Rt. Hon. H. A.
Rankin, John
White, Mrs. Eirene (E. Flint)


Mellish, R. J.
Redhead, E. C,
White, Henry (Derbyshire, N.E.)


Messer, Sir F.
Rhodes, H.
Wilcock, Group Capt. C. A. B.


Mikardo, Ian
Roberts, Goronwy (Caernarvon)
Wilkins, W. A.


Mitchison, G. R.
Rogers, George (Kensington, N.)
Willey, Frederick


Monslow, W.
Ross, William
Williams, Rev. Llywelyn (Ab'tillery)


Moody, A. S.
Royle, C.
Williams, Ronald (Wigan)


Morris, Percy (Swansea, W.)
Short, E W.
Williams, Rt. Hon. T. (Don Valley)


Moyle, A.
Skeffington, A. M.
Williams, W. R. (Openshaw)


Mulley, F. W.
Slater, Mrs. H (Stoke, N.)
Willis, Eustace (Edinburgh, E.)


Noel-Baker, Rt. Hon. P. (Derby, S.)
Slater, J. (Sedgefield)
Wilson, Rt. Hon. Harold (Huyton)


O'Brien, Sir Thomas
Sorensen, R. W.
Winterbottom, Richard


Oliver, G. H.
Soskice, Rt. Hon. Sir Frank
Woof, R. E.


Oram, A. E.
Sparks, J. A.
Yates, V. (Ladywood)


Orbach, M.
Steele, T.



Oswald, T.
Stewart, Michael (Fulham)
TELLERS FOR THE NOES:




Mr. Pearson and Mr. Simmons.

Clause, as amended, ordered to stand part of the Bill.

Clause 27.—(ANNUAL DETERMINATION OF STATUS, AND PROVISIONS ON CHANGES OF STATUS.)

Mr. Powell: I beg to move, in page 21, line 43, at the end, to insert:
Provided that a company shall qualify as an Overseas Trade Corporation for any such year if it only fails to comply with the requirements specified in any of the foregoing paragraphs because it, or a company which is its subsidiary company, has only recently been formed, or is about to be or is being wound up, and, consequently, is not carrying on a trade outside the United Kingdom.
This is a very minor Amendment, designed to deal with the case of a company which is formed or wound up during the tax year. It is a requirement for qualifying in such circumstances as an overseas trade corporation that, among other things, the company shall he carrying on trade outside the United Kingdom during the whole time that it is in existence. It will be obvious that where a company is being wound up or is just starting, one could not guarantee that it was actually conducting trade abroad either on the last day before it ceased to exist or on the first day after it came into existence. Therefore, without this proviso it might be prevented on a purely technical ground from qualifying and getting the benefit of subsection (1, a). It is to rectify that doubt that the proviso is felt to be

necessary and I suggest that it be added to the subsection.

Amendment agreed to.

Motion made, and Question proposed, That the Clause, as amended, stand part of the Bill.

Mr. Houghton: Clause 27 (2) appears to give to the Commissioners of Inland Revenue certain discretionary powers to deal with companies which have slipped up. It says that
If it appears to the Commissioners of Inland Revenue that a company would have the necessary qualifications so as to qualify as an Overseas Trade Corporation for a period but for some event over which the company had no control or some act done by the company inadvertently and that no material advantage, was obtained by the company from that event or from its act, then for the purposes of this section that event or act shall, if the Commissioners of Inland Revenue in their discretion so direct, be disregarded.
This seems to me to be a new and unusual power given to the Commissioners and we should invite the Financial Secretary to throw some light upon it.
Section 66 of the Income Tax Act, 1952, deals with errors and omissions and things of that kind and the rights of the taxpayer to rectify them but, as far as I know, none of the provisions of that Section enables the taxpayer to say, "I am awfully sorry but I inadvertently did something which has put me at a disadvantage according to the Income Tax Act. I really had no idea


that I was doing it and up to now have had no material advantage. Will you please disregard it? "We ought to know what are the conditions under which the Commissioners of Inland Revenue would be able to exercise this discretionary power.
9.30 p.m.
Then again, under Section 66, in the event of the Commissioners rejecting a plea for rectification from a taxpayer, ho has certain rights of appeal to the Special Commissioners. The Committee will be reluctant to give discretionary powers to the Commissioners of Inland Revenue which may have the appearance of manipulating the law or allowing the taxpayer to manipulate the law. I am sure there is no ulterior motive in the subsection, and I have the utmost confidence in the Commissioners of Inland Revenue—at least, on everything except establishment matters. They, I am sure, will exercise these powers with discretion, but will this be fair to other taxpayers? What are the circumstances in which a taxpayer would inadvertently do something which he would be justified in asking to be disregarded?
Is it that this box of tricks in Part IV of the Bill is so complex, so full of pitfalls and stumbling blocks that at the end of this labyrinth there must be the comforting arms of the Commissioners of Inland Revenue, who will put him right if he stumbles through the dark thing? We want to know whether that is the object of this subsection.
After all, most overseas trade corporations will be littered with chartered accountants, astute solicitors, ingenious advisers of every kind and ilk, and they will not be without sure guidance through all the traps in Part IV of the Bill. In fact, the great worry of the Commissioners of Inland Revenue is that there are so many ingenious taxpayers who are able to employ at high professional fees the most astute and imaginative professional advice which will open up all the loopholes, create those that are not there to begin with and, in the end, draw a coach and horses through it, and when the Commissioners of Inland Revenue have seen the money draining away for four or five years then the Chancellor does something about it.
I really think that this is so unusual that the Committee should have a full explanation of what it is intended to do. For instance, why does a company that does something inadvertently, and derives no material advantage from it, have to be put right? Why has the discretion of the Commissioners of Inland Revenue to be sought unless it is to put something right which will lead to an advantage to the taxpayer?
We do not want to give discretionary powers to the Administration which may be exercised in a way which this Committee and the House would not approve, and to which other taxpayers may object. I hope that the Financial Secretary will have reassurances to give upon this point, and explanations of the type of case that the Clause is put there to help. Otherwise we shall he bound to regard this with such repugnance that we must vote against it. If there is need for something of this kind, it should be put on a statutory basis, or at least the authority to exercise the discretion should be a body to which the taxpayer could go in the full light of day and have his case heard in a judicial manner.
The Commissioners of Inland Revenue, as I have said more than once, have the care and maintenance of the Income Tax Acts. They are part of the bureaucracy to administer one of our most complicated tax codes and they are therefore, as a rule, not an appellate body. Usually the appeal is to the General Commissioners and from them in certain circumstances to the Special Commissioners or to appeal tribunals or to the courts. I think we ought to know more about this provision. We ought to have definite assurances that it is intended for a proper purpose and that it can rarely be used, and then only in manner which would receive public approval.

Mr. Powell: I think all sides of the Committee approve that the conditions on which companies shall enjoy the status of overseas trade corporations shall be very narrowly and tightly drawn so as, in particular, to avoid giving a preference to one person trading and making profits in the United Kingdom as against another; and, amongst other places, these conditions are to be found in Clause 21, which has been added to the Bill. The concept is that a number of resident companies,


by fulfilling the conditions in Clause 21—the type of company to which the purpose of this part of the Bill is directed—will gain the status of overseas trade corporations and will in future trade under those equal terms with their competitors which this Part of the Bill provides for them.
If there were not this provision to which the hon. Member for Sowerby (Mr. Houghton) drew attention, then on a strict intepretation of Clause 21 a single and even inadvertent action in contravention of any of the requirements, for example of Clause 21—I will give an example in a moment—would in strict law disqualify that company for the whole of that tax year from the status which it enjoyed, was intended to enjoy, and thought it was remaining qualified to enjoy. It is therefore clearly necessary that we should prevent a merely technical slip from having an effect which, given the general policy, no one intends.
Let us suppose that an overseas trade corporation is taking over a cargo free on board which it is to dispose of in its overseas trading field. Let us suppose that that ship is held up by some trouble and that the cargo, perhaps perishable, is nevertheless, after coming into the possession of the overseas trade corporation, disposed of, perhaps by the company's agents in the United Kingdom. Although that action might involve loss rather than gain to the company, under Clause 21 it would technically disqualify that company from overseas trade corporation status for the whole of that year. It is that type of irrelevant and accidental breach of the conditions, particularly of Clause 21, to which this subsection is directed.
Consequently, I can readily give the assurance which the hon. Member asked me to give. This provision is intended both to be rarely used and to be used only in cases where there can be no question of the company deliberately seeking a double advantage—the advantage of a company treated as an overseas trade corporation and the advantage of trading in contravention of some of the requirements for an O.T.C.
If it is to be dealt with in the manner which the circumstances require, this is obviously a matter in which a discretion has to be given to the Commissioners of Inland Revenue who, ex hypothesi, will

be entirely au fait with the trading proceedings of the company in question and will be in a position to judge the bearing of this act or event upon the trading position of the company.
I therefore suggest to the Committee that although, as the hon. Member for Sowerby said, and I accept it, this is a new and unusual power which we are here entrusting to the Commissioners of Inland Revenue, it is sensible and convenient and one without which the purpose of the Bill as a whole might in some entirely meritorious cases be frustrated.

Mr. Harold Wilson: The reply the Financial Secretary has given to my hon. Friend the Member for Sowerby (Mr. Houghton) will be regarded in many parts of the Committee as rather extraordinary. He said that because of the possibility of inadvertence it was necessary in these cases for the Commissioners of Inland Revenue to be able to exercise their discretion. That is almost without precedent in Income Tax law and administration.
The Committee and the Committees in previous years have always been very much on guard against any provisions allowing too much discretion to the tax authorities. Perhaps we have debated this far more in terms of the Board of Customs and Excise than in terms of the Board of Inland Revenue. I remember hon. Members in several parts of the Committee on a previous Finance Bill two or three years ago expressing very grave concern in connection with that very technical subject called "uplift" in which the word "mainly" or "substantially" was used. It was left in the hands of the Board of Customs and Excise. The Paymaster-General, who had something to do with those matters at that time, may recall that debate. It is very strange that this discretion is given in this way to the Board of Inland Revenue.
The Financial Secretary did not take up the point of my hon. Friend when he asked in what previous cases this has been done. My hon. Friend with his vast experience of Income Tax law finds it difficult to put his finger on any similar case. I remember hearing a very distinguished tax lawyer a couple of years ago when I was having a general discussion who said to me. "Of course, your job in the House of Commons would be


a great deal easier if instead of having all these vast Finance Bills and consolidation Measures you just said that Income Tax shall be paid in those cases where the Board of Inland Revenue considers it right that it should be paid. "I told him that that was something of an exaggeration and I think that I was justified in saying so when one looks at the extent to which the Board of Inland Revenue is restricted and confined in the cases in which it can tax and disallow tax.
The Financial Secretary is one who, unlike the Chancellor, on the whole wants these provisions tight, but one wonders where this will all end. Are we to have new Measures covering the whole of Income Tat and Profits Tax legislation where there are hard cases and where some chap has fallen foul of the law in some small particular where the Board of Inland Revenue shall have the power to overlook it? Is that to be a new and very important hole which will be drilled below the Revenue water line in some subsequent Finance Bill? Perhaps the Financial Secretary will assure us that the Government do not have that in mind.
In other cases where a hard luck story is produced the Revenue would never dream of accepting it and would say that it could not accept it because of the law of the land. I might mention one or two parallel cases. I am not pleading for the Revenue to have a right of discretion in these hard luck cases, but I am saying that since taxpayers have to meet the requirements of the law in every other case known to us, I do not know why there should be discrimination in this case.
As an illustration, I could refer to subventions under Section 20 of the 1953 Act. It might be that because of inadvertence a particular exchange of shares did not take place quite on the right day; it might have been thought to have been done, but not have been properly sealed or something like that, and with no gain or financial advantage resulting from the inadvertence. Perhaps they were a day late, and therefore the subsidiary or associated company did not come into the group for E.P.L., or whatever it was. That might well happen, and it probably has happened but the Board of Inland Revenue have no power at all to give a certificate of inadvertence or whatever is

required under the new procedure, and, we should say, quite rightly.
9.45 p.m.
There are all sorts of hard cases in the field of social insurance, and every one of us knows from experience of his own constituency cases of men injured a day or two early. In my own constituency, a man was killed two days before the passage of the National Insurance (Industrial Injuries) Bill, and, therefore ruled out from benefit. We may say that it is hard luck for a man to be killed a day or two early, and all that sort of argument might apply. The same thing applies in the case of widows whose husbands died under the appropriate age. But no one has ever suggested that the Ministry of National Insurance should have the power to grant a dispensation, and I am glad to see that my hon. Friend the Member for Ince (Mr. T. Brown) is here, because he knows it so well.
Here is a case where it is not a question of pure bad luck but of frank mismanagement. These companies have the benefit of the most highly-paid lawyers and accountants to advise them, and if they bring cargoes into the country which they should not have brought, they should know that by doing so they put themselves outside the reliefs given by this Bill. In the sort of case which I have mentioned, the subvention case, where the Revenue hardens its heart, and rightly so, it applies the law as the law is laid down by this House in past Finance Bills.
To take another case rather nearer to the sort of thing we are talking about in Part IV of this Bill, let us consider the case where a company—and this sort of case has been mentioned many times this week—has established by one means or another a non-resident company overseas. It has appointed a local board of directors, or has seen to the appointment of a local board of controlling directors, to fulfil the local laws of the country in question. The whole of the shares are held by the British parent company, but, because control is purely shareholding control, even though they may have acted in a sense in terrorem, because this board of directors can be sacked at a moment's notice by the shareholders, even so, the Revenue have always accepted in such cases, provided that the local board of management does exercise management, that it is a non-resident company


outside the tax jurisdiction of this country.
We know that the services of the greatest lawyers and accountants have been used in order to ensure that the Revenue never has any excuse for suggesting that in such cases that a non-resident company is in any way controlled, and that is why every letter that goes out to them is drafted in terms suggested by lawyers. For instance, they never tell the local board of management to do anything. They say, "We suggest for your consideration that you might consider doing so and so", or "This is a matter which we should like you to consider." Of course, the local board of directors knows all the time that they are being told to do it, and that if they did go against the parent company, in due course they could be discharged under the shareholders' control.
Nevertheless, in accordance with the law, long established for 75 years or more, the Board of Inland Revenue says that if there is no control in this country, then it is a non-resident company and it is outside tax jurisdiction. But let us suppose that by inadvertence, perhaps when the director looking after this sort of business is on his summer holidays or may be listening to a debate in the House of Commons about overseas trading corporations, and he is not there, some junior person, inadvertently and without authority, perhaps sends a letter to this overseas board of management and says "It is our view that you should do so and so", or "You had better buy this or sell that", or "You are charging too much for these materials you are exporting overseas." I do not think that any gain comes to the company from that one act, but the Board would not be empowered—and I think rightly so—to waive the conditions of the Income Tax Acts in such a case. It is inadvertent, and it is only one small slip or accident. There is no direct gain to the company therefrom, but in that case inadvertence is a matter which is heavily punished, and the company might then be regarded as not being a non-resident company.
In this case, however, from the illustration given by the Financial Secretary, if there is this act of inadvertence and this little accident or slip-up, from which, as a consequence of the law, the company

should lose its status, the Board of Inland Revenue is empowered to be generous and overlook this little fault. We hope that the Financial Secretary is right in thinking that it will always be easy to spot the case of sheer inadvertence, and to distinguish that case from the case where a deliberate act has taken place.
But just as hon. Members on this side of the Committee feel that this part of the Bill puts an impossibly heavy load upon those having to operate a complicated system, and just as we think that the already heavily strained Inland Revenue system is being given almost impossible tasks of decision, so I think that the Financial Secretary is adding to those difficulties once he admits this principle of inadvertence and lays upon inspectors of taxes and the Board of Inland Revenue this very difficult task of having to decide whether a particular chance arrival of an allegedly perishable cargo is a piece of inadvertence or a deliberate act for the sake of some immediate gain.
Once the Clause is accepted, if there is such a chance arrival there is no doubt that the firm concerned or its accountants and lawyers will say, "We should like the Board of Inland Revenue to exercise its waiver in this respect". The Board, with such information as it has, will then have to decide, one way or the other, whether this was a piece of inadvertence, and whether there was any gain from this shipment. This will put a very heavy load upon the Board. It will greatly increase the burden upon the staff. I hope that the Government will think about this matter again. As far as we know they are creating an entirely new precedent. If not, perhaps the Financial Secretary can tell us of other cases where the Board has this power of discretion.
We hope that the Government will agree to think again about this question and will put the law with regard to overseas trade corporations upon exactly the same basis as the law applying to other taxpayers. If not, by being overgenerous in this case the hon. Gentleman will be creating unfairness in all those cases where taxpayers have to suffer because they make some little slip, and where, because they fail to conform with some quite small cedilla of the law, they are landed with a heavy tax payment.


Surely the hon. Gentleman will agree to re-examine this question and to put this part of the law upon the same basis as that with which we have become familiar through previous Finance Bills.

Question put, That the Clause, as amended, stand part of the Bill:—

The Committee divided: Ayes 227. Noes 176.

Division No. 152.]
AYES
[954 p.m.


Agnew, Sir Peter
Graham, Sir Fergus
Maitland, Cdr. J. F. W. (Horncastle)


Aitken, W. T.
Grant, W. (Woodside)
Maitland, Hon. Patrick (Lanark)


Allan, R. A. (Paddington, S.)
Grant-Ferris, Wg Cdr. R. (Nantwich)
Manningham-Buller, Rt. Hn. Sir R.


Amery, Julian (Preston, N.)
Green, A.
Markham, Major Sir Frank


Amory, Rt. Hn. Heathcoat (Tiverton)
Crimston, Sir Robert (Westbury)
Marlowe, A. A. H.


Arbuthnot, John
Grosvenor, Lt.-Col. R. G.
Marshall, Douglas


Armstrong, C. W.
Gurden, Harold
Mathew, R.


Ashton, H.
Hall, John (Wycombe)
Maudling, Rt. Hon. R


Atkins, H. E.
Harris, Frederic (Croydon, N.W.)
Mawby, R. L.


Baldock, Lt.-Cmdr. J. M.
Harris, Reader (Heston)
Maydon, Lt.-Comdr. S. L. C.


Baldwin. A. E.
Harrison, Col. J. H. (Eye)
Milligan, Rt. Hon. W. R.


Balniel, Lord
Harvey, Sir Arthur Vere (Macclesfd)
Mott-Radclyffe, Sir Charles


Barber, Anthony
Harvey, John (Walthamstow, E.)
Nabarro, G. D. N.


Barlow, Sir John
Heald, Rt. Hon. Sir Lionel
Neave, Airey


Barter, John
Heath, Rt. Hon. E. R. G.
Nicolson, N. (B'n'm'th, E. &amp; Chr'ch)


Baxter, Sir Beverley
Henderson, John (Cathcart)
Nugent, G. R. H.


Bell, Philip (Bolton, E.)
Henderson-Stewart, Sir James
Oakshott, H. D.


Bell, Ronald (Bucks, S.)
Hesketh, R. F.
Orr-Ewing, Charles Ian (Hendon, N.)


Bidgood, J. C.
Hicks-Beach, Maj. W. W.
Osborne, C.


Biggs-Davison, J. A.
Hill, Rt. Hon. Charles (Luton)
Page, R. G.


Birch, Rt. Hon. Nigel
Hill, Mrs. E. (Wythenshawe)
Pannell, N. A. (Kirkdale)


Bishop, F. P.
Hill, John (S. Norfolk)
Partridge, E.


Black, C. W.
Hirst, Geoffrey
Peyton, J. W. W.


Body, R. F.
Holland-Martin, C. J.
Pickthorn, K. W. M.


Bossom, Sir Alfred
Holt, A. F.
Pike, Miss Mervyn


Bowen, E. R. (Cardigan)
Hope, Lord John
Pilkington, Capt. R. A.


Boyd-Carpenter, Rt. Hon. J. A.
Hornby, R. P.
Pitt, Miss E. M.


Braine, G. R.
Hornsby-Smith, Miss M. P.
Powell, J. Enoch


Brooman-White, R. C.
Horobin, Sir Ian
Price, Henry (Lewisham, W.)


Bryan, P.
Howard, Hon. Greville (St. Ives)
Profumo, J. D.


Bullus, Wing Commander E. E.
Howard, John (Test)
Raikes, Sir Victor


Burden, F. F. A.
Hudson, W. R. A. (Hull, N.)
Ramsden, J. E.


Cary, Sir Robert
Hughes Hallett, Vice-Admiral J.
Rawlinson, Peter


Channon, Sir Henry
Hughes-Young, M. H. C.
Redmayne, M.


Chichester-Clark, R.
Hurd, A. R.
Rees-Davies, W. R.


Clarke, Brig. Terence (Portsmth, W.)
Hutchison, Michael Clark (E'b'gh, S.)
Remnant, Hon. P.


Cooke, Robert
Hutchison, Sir Ian Clark (E'b'gh, W.)
Renton, D. L. M.


Cooper-Key, E. M.
Hutchison, Sir James (Scotstoun)
Ridsdale, J. E.


Cordeaux, Lt.-Col. J. K.
Hylton-Foster, Rt. Hon. Sir Harry
Robinson, Sir Roland (Blackpool, S.)


Corfield, Capt. F. V.
Iremonger, T. L.
Rodgers, John (Sevenoaks)


Craddock, Beresford (Spelthorne)
Irvine, Bryant Godman (Rye)
Roper, Sir Harold


Crowder, Sir John (Finchley)
Jenkins, Robert (Dulwich)
Ropner, Col. Sir Leonard


Crowder, Petre (Ruislip—Northwood)
Jennings, J, C. (Burton)
Russell, R. S.


Cunningham, Knox
Johnson, Dr. Donald (Carlisle)
Schofield, Lt.-Col. W.


Currie, G. B. H.
Johnson, Eric (Blackley)
Scott-Miller, Cmdr. R.


Dance, J. C. G.
Joynson-Hicks, Hon. Sir Lancelot
Sharples, R. C.


Davidson, Viscountess
Keegan, D.
Shepherd, William


Davies. Rt. Hn. Clement (Montgomery)
Kerby, Capt. R. B.
Simon, J. E. S. (Middlesbrough, W.)


D'Avigdor-Goldsmid, Sir Henry
Kerr, Sir Hamilton
Smithers, Peter (Winchester)


Deedes, W. F.
Kershaw, J. A.
Smyth, Brig. Sir John (Norwood)


Dodds-Parker, A. D.
Kimball, M.
Spearman, Sir Alexander


Doughty, C. J. A.
Kirk, P. M.
Spence, H. R. (Aberdeen, W.)


Drayson, G. B.
Lagden, G. W.
Spens, Rt. Hn. Sir P. (Kens'gtn, S.)


du Cann, E. D. L.
Lancaster, Col. C. G.
Stanley, Capt. Hon. Richard


Dugdale, Rt. Hn. Sir T. (Richmond)
Leather, E. H. C.
Stevens, Geoffrey


Eden, J. B. (Bournemouth, West)
Leavey, J. A.
Steward, Harold (Stockport, S.)


Elliott, R. W. (N'castle upon Tyne, N.)
Legge-Bourke, Maj. E. A. H.
Storey, S.


Errington, Sir Eric
Lindsay, Hon. James (Devon, N.)
Studholme, Sir Henry


Farey-Jones, F. W.
Lindsay, Martin (Solihull)
Summers, Sir Spencer


Fell, A.
Lloyd, Maj. Sir Guy (Renfrew, E.)
Sumner, W. D. M. (Orpington)


Finlay, Graeme
Lucas, P. B. (Brentford &amp; Chiswick)
Taylor, Sir Charles (Eastbourne)


Fisher, Nigel
Lucas-Tooth, Sir Hugh
Teeling, W.


Fletcher-Cooke, C.
McAdden, S. J.
Temple, John M.


Foster, John
Macdonald, Sir Peter
Thomas, Leslie (Canterbury)


Fraser, Sir Ian (M'cmbe &amp; Lonsdale)
Mackeson, Brig. Sir Harry
Thompson, Kenneth (Walton)


Freeth, Denzil
Mackie, J. H. (Galloway)
Thompson, Lt.-Cdr. R.(Croydon, S.)


Gammans, Lady
McLaughlin, Mrs. P.
Thorneycroft, Rt. Hon. P.


Garner-Evans, E. H.
Maclean, Fitzroy (Lancaster)
Thornton-Kemsley, C. N.


George, J. C. (Pollok)
McLean, Neil (Inverness)
Tilney, John (Wavertree)


Clover, D.
Macleod, Rt. Hn. Iain (Enfield, W.)



Gomme-Duncan, Col. Sir Alan
Macmillan, Maurice (Halifax)
Turton, Rt. Hon. R. H.


Goodhart, Philip
Macpherson, Niall (Dumfries)
Tweedsmuir, Lady


Gower, H. R.
Maddan, Martin
Vane, W. M. F.




Vickers, Miss Joan
Ward, Dame Irene (Tynemouth)
Woollam, John Victor


Wade, D. W.
Webbe, Sir H.



Wall, Major Patrick
Whitelaw, W. S. I.
TELLERS FOR THE AYES:


Ward, Rt. Hon. G. R. (Worcester)
Wills, G. (Bridgwater)
Mr. Legh and Mr. E. Wakefield.




NOES


Ainsley, J. W.
Healey, Denis
Pannell, Charles (Leeds, W.)


Allaun, Frank (Salford, E.)
Henderson, Rt. Hn. A. (Rwly Regis)
Pargiter, G. A.


Allen, Arthur (Bosworth)
Hobson, C. R. (Keighley)
Parker, J.


Allen, Scholefield (Crewe)
Holmes, Horace
Parkin, B. T.


Awbery, S. S.
Houghton, Douglas
Peart, T. F.


Bacon, Miss Alice
Howell, Charles (Perry Barr)
Pentland, N.


Baird, J.
Hughes, Cledwyn (Anglesey)
Popplewell, E.


Bellenger, Rt. Hon. F. J.
Hughes, Emrys (S. Ayrshire)
Prentice, R. E.


Benn, Hn. Wedgwood (Bristol, S.E.)
Hughes, Hector (Aberdeen, N.)
Price, J. T. (Westhoughton)


Benson, G.
Hunter, A. E.
Price, Philips (Gloucestershire, W.)


Beswisk, Frank
Hynd, H. (Accrington)
Probert, A. R.


Blackburn, F.
Hynd, J. B. (Attercliffe)
Proctor, W. T.


Blenkinsop, A.
Irving, Sydney (Dartford)
Pryde, D. J.


Blyton, W. R.
Janner, B.
Randall, H. E.


Boardman, H.
Jay, Rt. Hon. D. P. T.
Rankin, John


Bottomley, Rt. Hon. A. G.

Redhead, E. C.


Bowden, H. W. (Leicester, S.W.)
Jeger, MrS. Lena (Holbn &amp; St. Pncs, S.)
Rhodes, H.


Bowles, F. G
Jenkins, Roy (Stechford)
Roberts, Goronwy (Caernarvon)


Boyd, T. C.
Johnson, James (Rugby)
Rogers, George (Kensington, N.)


Brockway, A. F.
Jones, Rt. Hon. A. Creech (Wakefield)
Ross, William


Brown, Rt. Hon. George (Belper)
Jones, David (The Hartlepools)
Royle, C.


Brown, Thomas (Ince)
Jones, J. Idwal (Wrexham)
Short, E. W.


Burton, Miss F. E.
Jones, T. W. (Merioneth)
Skeffington, A. M.


Champion, A. J.
Kenyon, C.
Slater, Mrs. H. (Stoke, N.)


Chapman, W. D.
Key, Rt. Hon. C. W.
Slater, J. (Sedgefield)


Chetwynd, G. R.
King, Dr. H. M.
Sorensen, R. W.


Clunie, J.
Lawson, G. M.
Soskice, Rt. Hon. Sir Frank


Coldrick, W.
Ledger, R. J.
Sparks, J. A.


Collick, P. H. (Birkenhead)
Lee, Frederick (Newton)
Steele, T.


Collins, V. J.(Shoreditch &amp; Finsbury)
Lee, Miss Jennie (Cannock)
Stewart, Michael (Fulham)


Corbet, Mrs. Freda
Lewis, Arthur
Stonehouse, John


Craddock, George (Bradford, S.)
Lindgren, G. S.
Stones, W. (Consett)


Cronin, J. D.
Logan, D. G.
Strachey, Rt. Hon. J.


Crossman, R. H. S.
MacColl, J. E.
Swingler, S. T.


Davies, Harold (Leek)
McInnes, J.
Sylvester, G. O.


Deer, G.
McKay, John (Wallsend)
Taylor, John (West Lothian)


de Freitas, Geoffrey
MacMillan, M. K. (Western Isles)
Thomson, George (Dundee, E.)


Delargy, H. J.
MacPherson, Malcolm (Stirling)
Thornton, E.


Dodds, N. N.
Mahon, Simon
Tomney, F.


Dugdale, Rt. Hn. John (W. Brmweh)
Mallalieu, E. L. (Brigg)
Ungoed-Thomas, Sir Lynn


Edelman, M.
Mann, Mrs. Jean
Viant, S. P.


Edwards, Rt. Hon. John (Brighouse)
Marquand, Rt. Hon. H. A.
Warbey, W. N.


Evans, Albert (Islington, S.W.)

West, D. G.


Fernyhough, E.
Mellish, R. J.
Wheeldon, W. E.


Flenburgh, W.
Messer, Sir F.
White, Mrs. Eirene (E. Flint)


Fletcher, Eric
Mikardo, Ian
White, Henry (Derbyshire, N. E.)


Fraser, Thomas (Hamilton)
Mitchison, G. R.
Wilcock, Group Capt. C. A. B.


Gaitskell, Rt. Hon. H. T. N.
Monslow, W.
Wilkins, W. A.


Gibson, C. W.
Moody, A. S.
Willey, Frederick


Gooch, E. G.
Morris, Percy (Swansea, W.)
Williams, Rev. Llywelyn (Ab'tillery)


Gordon Walker, Rt. Hon. P. C.
Moyle, A.
Williams, Ronald (Wigan)


Greenwood, Anthony
Mulley, F. W.
Williams, Rt. Hon. T. (Don Valley)


Grey, C. F.
Noel-Baker, Rt. Hon. P. (Derby, S.)
Williams, W. R. (Openshaw)


Griffiths, David (Rother Valley)
O'Brien, Sir Thomas
Wilson, Rt. Hon. Harold (Huyton)


Griffiths, Rt. Hon. James (Llanelly)
Oliver, G. H.
Winterbottom, Richard


Hale, Leslie
Oram, A. E.
Woof, R. E.


Hall, Rt. Hn. Glenvil (Colne Valley)
Orbach, M.
Yates, V. (Ladywood)


Hamilton, W. W.
Oswald, T.



Hastings, S.
Padley, W. E.



Hayman, F. H.
Palmer, A. M. F.
TELLERS FOR THE NOES:




Mr. Pearson and Mr. Simmons.

Clause, as amended, ordered to stand part of the Bill.

Clause 28.—(ADJUSTMENT OF PRICE ON TRANSACTIONS BETWEEN AN OVER -SEAS TRADE CORPORATION AND A PERSON TRADING IN THE UNITED KINGDOM.)

Motion made, and Question proposed, That the Clause stand part of the Bill.

Mr. Gordon Walker: We regard this Clause as a bad one. It will add lush, fresh fields of tax avoidance to our fiscal system. The purport of the Clause is to create artificial conditions under which it is pretended that two companies which are really one and the same are trading at arms length. It is trying to create artificial conditions—which do exist between distinct and separate companies—between a parent company and its hived-off subsidiary. The whole idea is that the Clause will stop phoney subterfuge prices being charged between one of the companies and the other.
On the Second Reading of the Finance Bill on 7th May the Financial Secretary said that the present powers of the Commissioners of Inland Revenue contained in Section 469 of the Income Tax Act, 1952, are expanded by Clause 28. He said:
The Commissioners will in fact find this power easier to exercise than their present power under Section 469…"—[OFFICIAL REPORT, 7th May, 1957; Vol. 569, c. 817.]
I do not think that when he said that the hon. Gentleman could have taken into account that we were to have at our disposal the memoranda of the Board of Inland Revenue, because they deal with this precise point. At any rate, I do not think the hon. Gentleman would have said that with such ease, assurance and complacency.
A good deal has been said about the proper rôle of the Board of Inland Revenue in our affairs, and its views. Every hon. Member agrees that the views of the Board are not very important or very decisive where matters of policy are involved. Governments and the House of Commons must decide matters of policy, advised by officials, but only advised by them. But when the Board of Inland Revenue begins to talk about details of administration and the administration and enforcement of a Clause like Clause 28, then what it says begins to be fairly weighty, and it cannot be just brushed off, as the Chancellor did the

other day. They are arguments which must be met and faced.
It is no good the Financial Secretary simply contradicting what the Commissioners said. That is what he did in his Second Reading speech. The arguments have to be met. In paragraph 14 of Memorandum No. 109 the Commissioners refer to Section 469 of the 1952 Act. In paragraph 15 they say that cases under the Section are rare and that
…there have been thirty-seven in the three years in which the Section has operated.
That remark was made in 1954. I suppose there have been a small number since.
The Commissioners said that:
…the main purpose of the Section was in terrorem.
That is a different picture from what the hon. Gentleman gave us on Second Reading. The Commissioners said that:
…it serves its purpose by deterring groups of companies from invoicing goods to each other at prices which are blatantly fictitious, but it is not, and cannot be, used as authority for challenging invoice prices"—
the very opposite to what the hon. Gentleman said—
which do not look unreasonable, notwithstanding that variations in price may have a very marked effect on profits and, therefore, on tax liability.
I ask the hon. Gentleman to take account of this in his reply, because it absolutely contradicts what he said. This is not a view; it is the Board of Inland Revenue giving the history of the administration of Section 469. The Commissioners say in paragraph 16:
It must not, therefore, be imagined that we have by experience built tip any body of practice which would help us in administering a scheme on the lines proposed.
That is, on the lines of Clause 28. They add:
In the case of many classes of export, there will exist no independent merchants"—
This refers to the fictitious pretence of trading at arm's length—
and as the rate of profit to turnover varies considerably according to the nature of the commodity there will not even be a theoretical basis for computing the merchanting profit.
The memorandum says in conclusion that claims will be made under the Act when there are special reasons why the price is a little different from what might be expected, and that such claims will be impossible to check.
This is the absolute controversion of what the hon. Gentleman said, and unless he can put up counter-arguments these statements of the Board will hold the field. What the hon. Gentleman told us on Second Reading was that Section 469 was frightfully important and was being extended, but the Board of Inland Revenue says that it is not very important and, if extended, would be unenforceable. What reasons can the hon. Gentleman give for accepting what he told us as against what the Board of Inland Revenue is telling us—not about its views on policy and on the theory of taxation but actually giving an account of the administration of a Section of the Act which it has been administering for a number of years.
If Clause 28 is, as we think, and as the Board of Inland Revenue seems to think, unenforceable, then, of course, the whole of this part of the Bill becomes unenforceable—including Clause 21, which tries to enforce f.o.b. prices. If all that is unenforceable we shall get into terrible trouble, sooner or later, with the G.A.T.T. and with O.E.E.C. We shall be breaking all their rules, and only pretending to keep them by Clauses which sound pretty, look nice, but are unenforceable.
The whole of this part of the Bill, particularly as exports are brought in, is really a subterfuge; pretending that people are different from what they really are, that they are trading differently from the way in which they are really trading, and pretending they are charging prices different from those that they are charging in reality. There is no way, says the Board of Inland Revenue, of enforcing it. We therefore regard this Clause as extremely bad, phoney and fictitious.

Mr. Birch: I am sorry that the right hon. Gentleman thinks that this is a bad Clause, as he has not tried to amend it, but it is, of course, a very important Clause indeed, because it is designed not only to prevent the syphoning away of profits to a place where they would not be taxed, but to meet the accusation that the overseas trade corporation conception might lead to a concealed export subsidy.
The right hon. Gentleman quoted to a certain extent from the memorandum prepared by the Board of Inland Revenue—

Mr. Roy Jenkins: Is there no element of export subsidy in the concession?

Mr. Birch: No.

Mr. Jenkins: Then what is the point of extending it to exporting companies?

Mr. Birch: It is not an export subsidy. If an exporting company buys goods at the same price f.o.b. as any other foreign company can buy them, there is no export subsidy. We have had that out already. Quite clearly there is not one.
The right hon. Gentleman quoted the Board of Inland Revenue as saying that there is no point in challenging something that does not look unreasonable. That seems a very sensible thing to say. As far as Section 469 of the Income Tax Act 1952 goes, it is perfectly true that there have not been many cases where adjustments of prices have actually been made, but there are two reasons for that. One is that there may not have been many attempts at evasion. Secondly, of course, under Section 469 as it is drawn, the powers are much less great than under this Clause.
There are two differences between that Section and this Clause. First, the Clause extends the provision; that is to say the company is not to be under control and is not to be a foreign company. The reason for not making it a controlled company is that there may be cases in which a consortium may be formed by two or three companies for the purpose of setting up an overseas trade corporation, and it might be possible there to syphon away profits. We have, therefore, specifically cut out the condition of control. The second way in which it is easier under the Clause than under Section 469 is that, ex hypothesi, these overseas trade corporations are resident companies, and their accounts can, and will be examined. It is not, I think, really beyond the powers of the Inland Revenue, when examining accounts of companies, to have a fairly good idea whether cheating is going on or not.

Mr. Gordon Walker: Examining the books of all O.T.C.s?

10.15 p.m.

Mr. Birch: All O.T.C.s are resident in this country, and their accounts are open to examination if necessary. It is far


easier to enforce this Clause than to enforce Section 469, because one has control over both sets of accounts.
We believe that the Clause can be made to work and will be worked. We think it a pity to express doubts upon the ability of the Inland Revenue to carry it through.

Mr. Chapman: If I may say so, this is really very unsatisfactory. When all is said and done, the right hon. Gentleman the Economic Secretary has tried to deal in about three minutes with a great deal of closely reasoned argument and evidence adduced by the Commissioners of Inland Revenue, wherein they say, quite frankly, that they have no experience in this sort of field. The Commissioners say:
It may, as a matter of theory, be necessary to rewrite a company's accounts and to substitute for prices at which goods are actually invoiced other figures based on market prices. In fact, cases of this kind are rare.
In other words, the Inland Revenue is saying from the start, "We have had no experience of this sort of thing". A little further on, referring to principles, the Memorandum says:
If their actual application had to be checked closely on a large scale, there would be much difficulty in particular cases".
These are sentences which I just put at the side of those already quoted by my right hon. Friend to show that the Inland Revenue is saying, quite bluntly, that we are entering upon a completely new field, and the Revenue has really not had to go into books, and vouchers or be involved in rewriting company's accounts, almost on a fictitious basis. That is, in fact, what will have to happen under the Clause.
The Economic Secretary dismisses that in a few sentences in about three minutes. It is not good enough. I know that my hon. Friend the Member for Sowerby (Mr. Houghton) has been saying that we must not take too much account of what the Inland Revenue says, but he was not talking about this sort of section in the comments of the Inland Revenue. He will, I am sure, get up in a minute and say that this is precisely the kind of point on which the Inland Revenue is to be regarded, not disregarded. He was saying that the Revenue must not make policy and principle for us, but I am sure he will say that, when it comes to knowing something about how to evade tax, the Com

missioners of Inland Revenue can tell us a good deal about what is going on in this country today.

Mr. E. Partridge: Is the hon. Gentleman saying that the Inland Revenue has had no experience? If so, then let us give it some.

Mr. Chapman: Perhaps the hon. Member for Battersea, South (Mr. Partridge) is one of those who wants a lot of people to escape the tax net in order to teach a few lessons to the Inland Revenue. I think it would be better not to start on the exercise at all. I am anxious to preserve the nation's revenue.
The argument and evidence put is very formidable indeed. It points to examples of companies, for example, where, when it comes to re-writing figures on more or less a fictitious basis, there is no basis of comparison. They are unique, producing a unique product. Who is to know what is the arms-length trade in a unique product more or less confined to one particular firm producing it for export? This sort of thing should not be dismissed in a minute or two, as the right hon. Gentleman is trying to do.
How is the Inland Revenue to set about its job? After all, as I understand it at the moment, there are only very rarely-used powers in the Commissioner of Inland Revenue to enforce the actual production of vouchers, invoices and all the rest. The powers of the inspector at the moment are confined to the production of books and accounts. To go much further into the privately kept papers of the individual firm requires special authorisation by the Commissioners.
What we want to know is whether there will be a willingness on the part of the Commissioners to use powers of this sort to ferret out what will doubtless be the attempts at evasion in cases like this. We want assurance that there will be energy in application and that even our fears are shared by the Government Front Bench. I have a feeling that the right hon. Gentleman, like his right hon. Friend this afternoon, is dismissing all this by saying, "It will not happen. We can leave it. These are wild imaginings of the Opposition and on those grounds we need not worry about it." We on this side want some effective answers to the people who know what tax evasion is when they have put before us ideas and


suggestions about how it will go on unless there is more thorough enforcement than is apparently the case at the moment. I regard the Minister's reply as totally unsatisfactory and I hope we shall divide against the Clause.

Mr. E. Fletcher: I support what my hon. Friend the Member for Northfield (Mr. Chapman) has said. It is inescapable that the Clause will fail completely to deal with the evil which it is intended to meet. The possibility is admitted that there will be traders who adopt false and fictitious prices for their exports of commodities. The attempt is made by the Clause to give the Inland Revenue power to deal with those people, but the Inland Revenue has admitted that it has no experience of dealing with such cases.
The Treasury has failed completely in attempting to deal with the problem. The Inland Revenue has admitted that it has no experience whatever in dealing with this kind of problem in applying Section 469 of the Income Tax Act. It confesses that it does not understand how to do it and has not done it.
If the Chancellor really wants to cure the difficulty, let me tell him that the people who have had considerable experience of this matter are the Commissioners of Customs and Excise, because they have had to deal with precisely this problem in reverse in connection with imports. There are plenty of cases in which English subsidiary companies of foreign parent firms, or, vice versa, try to import goods into this country at unduly low prices to avoid Customs duties. Therefore, the Commissioners of Customs and Excise have had considerable experience in detecting this kind of abuse and dealing with it. They are, however, as the Chancellor should know if he has looked at the Customs Consolidation Act, given wide powers.
If the Chancellor is serious in attempting to check the practice in connection with exports, which is only the same operation in reverse, he should not have applied Section 469 of the Income Tax Act but should make sure that the Commissioners of Inland Revenue have the same powers as the Commissioners of Customs and Excise in dealing with imports. Everybody will recognise that nothing like the same power is being given to the Commissioners of Inland Revenue. The Chancellor will find that, however well-intentioned he may be in trying to

prevent this kind of abuse, it will almost inevitably take place and the Inland Revenue authorities will be unable to cope with it. For that reason, we oppose the Clause.

Mr. Roy Jenkins: My hon. Friend the Member for Islington, East (Mr. Fletcher) has made an extremely valuable suggestion and certainly added to the information at our disposal in considering this matter, which is more than can be said for the speech of the Economic Secretary, who dealt with the matter in the most perfunctory way. It is quite clear from the course of our debates that when we have replies from the Economic Secretary they are much more perfunctory than those we get from the Financial Secretary. When we get replies from the Chancellor, of course, they are just breathless and reckless, but have a certain engaging quality of their own. We should like to have more replies from the Chancellor. We value them when they come, even though we do not altogether agree with them.
It has emerged quite clearly that of the Treasury trio, unsupported, rather unusually, on any occasion by a Law Officer, despite the extremely complicated nature of this legislation, the only one of the three who has any real feeling for dealing with avoidance and the possibility of evasion is the Financial Secretary. Yet when we come to deal with a Clause which is the main anti-avoidance provision, it is odd that the Financial Secretary should not speak about it and that the Economic Secretary, who joins with the Chancellor in not being concerned about avoidance, being a "hundred percenter" or whatever it is, should get up and give this extremely perfunctory answer.
I should have thought that it was common ground on both sides of the Committee that the views of the Inland Revenue were extremely relevant on this matter. Last night we had a good deal of dispute as to what extent, on matters of policy, we should take account of the views of the Inland Revenue, but when we are dealing with technical, administrative and anti-avoidance problems, I have no doubt, and I hope that my hon. Friend the Member for Sowerby (Mr. Houghton) would agree with me, that the views of the Inland Revenue carry a great deal of weight.
It is no good the Economic Secretary pretending that we are dealing with a different problem here and that Clause 28 is something qualitatively different from the Section of the 1952 Income Tax Act under which the Inland Revenue had previously proceeded, because quite clearly a great part of the views that the Inland Revenue put forward in Memorandum 109 referred to what it could or could not do under a particular piece of legislation. It referred quite clearly to the extreme difficulty of anybody in any practical sense making a judgment as to what was a fair arm's length price between a manufacturing company and an exporting company.
The Inland Revenue referred to it in quite forceful language. It developed it by saying that the problem was exacerbated by the fact that in just those exports which were and are expanding most rapidly it yeas most difficult to make such a decision, because they were essentially specialised products where there can be, by their very nature, no past practice by which to go and by which to make a

decision on what is a market price. I certainly think, therefore, that in view of the extremely unsatisfaotory, perfunctory and brief reply by the Economic Secretary, and in view of the importance of the issue, we on this side of the Committee are bound to express our disapproval by voting against the Clause.

The Clause, of course, is better than nothing, but it is highly unsatisfactory. In view of the fact that we were told by the Financial Secretary, when the Bill was first introduced, that the avoidance provisions were of great importance and had been most carefully worked out, and yet when we come to examine them in detail nothing is said in support of them except some few brief sentences by the Economic Secretary, we have no recourse, unless we have a further and more satisfactory reply from the Government, but to vote against the Clause.

Question put, That the Clause stand part of the Bill:—

The Committee divided: Ayes 215, Noes 160.

Division No. 153.]
AYES
[10.29 p.m.


Agnew, Sir Peter
Crowder, Petre (Rulslip—Northwood)
Harvey, John (Walthamstow, E.)


Aitken, W. T.
Cunningham, Knox
Heald, Rt. Hon. Sir Lionel


Allan, R. A. (Paddington, S.)
Currie, G. B. H.
Heath, Rt. Hon. E. R. G.


Amery, Julian (Preston, N.)
Dance, J. C. C.
Henderson, John (Cathcart)


Amory, Rt. Hn. Heathcoat (Tiverton)
Davidson, Viscountess
Henderson-Stewart, Sir James


Arbuthnot, John
Davies, Rt. Hn. Clement (Montgomery)
Hesketh, R. F.


Armstrong, C. W.
D'Avigdor-Goldsmid, Sir Henry
Hill, Rt. Hon. Charles (Luton)


Ashton, H.
Deedes, W. F.
Hill, Mrs. E. (Wythenshawe)


Atkins, H. E.
Dodds-Parker, A. D.
Hill, John (S. Norfolk)


Baldock, Lt.-Cmdr. J. M.
Doughty, C. J. A.
Hirst, Geoffrey


Baldwin, A. E.
Drayson, G. B.
Holland-Martin, C. J.


Balniel, Lord
du Cann, E. D. L.
Holt, A. F.


Barber, Anthony
Dugdale, Rt. Hn. Sir T.(Richmond)
Hope, Lord John


Barlow, Sir John
Eden, J. B. (Bournemouth, West)
Hornby, R. P.


Barter, John
Elliott, R.W.(N'castle-upon. Tyne, N.)
Hornsby-Smith, Miss M. P.


Baxter, Sir Beverley
Errington, Sir Eric
Horobin, Sir Ian


Bell, Philip (Bolton, E.)
Farey-Jones, F. W.
Howard, Hon, Greville (St. Ives)


Bell, Ronald (Bucks, S.)
Fell, A.
Howard, John (Test)


Bidgood, J. C.
Finlay, Graeme
Hudson, W. R. A. (Hull, N.)


Biggs-Davison, J. A.
Fisher, Nigel.
Hughes, Hallett, Vice-Admiral J.


Birch, Rt. Hon. Nigel
Fletcher-Cooke, C.
Hurd, A. R.


Bishop, F. P.
Fraser, Sir Ian (M'cmbe &amp; Lonsdale)
Hutchison, Michael Clark (E'b'gh. S.)


Black, C. W.
Freeth, Denzil
Hutchison, Sir Ian Clark(E'B'gh, W.)


Body, R. F.
Gammans, Lady Ann Muriel
Hylton-Foster, Rt. Hon, Sir Harry


Bossom, Sir Alfred
Garner-Evans, E. H.
Iremonger, T. L,


Bowen, E. R. (Cardigan)
George, J. C. (Pollok)
Irvine, Bryant Godman (Rye)


Boyd-Carpenter, Rt. Hon. J. A.
Glover, D.
Jenkins, Robert (Dulwich)


Braine, B. R.
Goodhart, Philip
Jennings, J. C. (Burton)


Brooman-White, R. C.
Gower, H. R.
Johnson, Dr. Donald (Carlisle)


Bryan, P.
Graham, Sir Fergus
Johnson, Eric (Blackley)


Bullus, Wing Commander E. E.
Grant-Ferris, Wg. Cdr. R.(Nantwich)
Joynson-Hicks, Hon. Sir Lancelot


Burden, F. F. A.
Green, A.
Keegan, D.


Channon, Sir Henry
Grimond, J.
Kerr, Sir Hamilton


Chichester-Clarke, R.
Grimston, Sir Robert (Westbury)
Kershaw, J. A.


Clarke, Brig. Terence (Portsmth, W.)
Grosvenor, Lt.-Col. R. G.
Kimball, M.


Cooke, Robert
Gurden, Harold
Kirk, P. M.


Cooper-Key, E. M.
Hall, John (Wycombe)
Lagden, G. W.


Cordeaux, Lt.-Col. J. K.
Harris, Frederic (Croydon, N.W.)
Leavey, J. A.


Corfield, Capt. F. V.
Harris, Reader (Heston)
Legge-Bourke, Maj. E. A. H.


Craddock, Beresford (Spelthorne)
Harrison, Col. J. H. (Eye)
Legh, Hon. Peter (Petersfield)


Crowder, Sir John (Finchley)
Harvey, Sir Arthur Vere (Macclesfd)
Lindsay, Martin (Solihull)




Lloyd, Maj. Sir Guy (Renfrew, E.)
Orr-Ewing, Charles Ian (Hendon, N.)
Spence, H. R. (Aberdeen, W.)


Lucas, P. B. (Brentford &amp; Chiswick)
Osborne, C.
Spens, Rt. Hn. Sir P. (Kens'gt'n, S.)


Lucas-Tooth, Sir Hugh
Page, R. G.
Stanley, Capt. Hon. Richard


McAdden, S. J.
Pannell, N. A. (Kirkdale)
Stevens, Geoffrey


Macdonald, Sir Peter
Partridge, E.
Steward, Harold (Stockport, S.)


Mackeson, Brig. Sir Harry
Peyton, J. W. W.
Storey, S.


Mackie, J. H. (Galloway)
Piokthorn, K. W. M.
Studholme, Sir Henry


McLaughlin, Mrs. P.
Pike, Miss Mervyn
Summers, Sir Spencer


Maclean, Fitzroy (Lancaster)
Pilkington, Capt. R. A.
Sumner, W. D. M. (Orpington)


McLean, Neil (Inverness)
Pitt, Miss E. M.
Taylor, Sir Charles (Eastbourne)


Macleod, Rt. Hon. Iain (Enfield, W.)
Powell, J. Enoch
Teeling, W.


Macmillan, Rt. Hn. Harold (Bromley)
Price, Henry (Lewisham, W.)
Temple, John M.


Macmillan, Maurice (Halifax)
Profumo, J. D.
Thompson, Kenneth (Walton)


Maddan, Martin
Raikes, Sir Victor
Thompson, Lt.-Cdr.R.(Croydon, S.)


Maitland, Cdr. J. F. W.(Horncastle)
Rawlinson, Peter
Thorneycroft, Rt. Hon. P.


Maitland, Hon. Patrick (Lanark)
Redmayne, M.
Thornton-Kemsley, C. N.


Manningham-Buller, Rt. Hn. Sir R.
Rees-Davies, W. R.
Turton, Rt. Hon. R. H.


Markham, Major Sir Frank
Remnant, Hon. P.
Tweedsmuir, Lady


Marlowe, A. A. H.
Renton, D. L. M.
Vane, W. M. F.


Marshall, Douglas
Ridsdale, J. E.
Vickers, Miss Joan


Mathew, R.
Rippon, A. G. F.
Wade, D. W.


Maudling, Rt. Hon. R.
Robinson, Sir Roland (Blackpool, S.)
Wakefield, Edward (Derbyshire, W.)


Mawby, R. L.
Rodgers, John (Sevenoaks)
Wall, Major Patrick


Maydon, Lt.-Comdr. S. L. C.
Roper, Sir Harold
Ward, Rt. Hon. G. R. (Worcester)


Milligan, Rt. Hon. W. R.
Ropner, Col. Sir Leonard
Ward, Dame Irene (Tynemouth)


Mott-Radclyffe, Sir Charles
Russell, R. S.
Webbe, Sir H.


Nabarro, G. D. N.
Schofield, Lt.-Col. W.
Whitelaw, W. S. I.


Neave, Airey
Sharpies, R. C.
Woollam, John Victor


Nicolson, N. (B'n'm'th, E. &amp; Chr'ch)
Shepherd, William



Nugent, G. R. H.
Simon, J. E. S. (Middlesbrough, W.)
TELLERS FOR THE AYES:


Oakshott, H. D.
Smithers, Peter (Winchester)
Mr. Wills and Mr. Hughes-Young.


Ormsby-Gore, Rt. Hon. W. D.
Spearman, Sir Alexander





NOES


Allaun, Frank (Salford, E.)
Griffiths, David (Rother Valley)
Mellish, R J.


Allen, Arthur (Bosworth)
Griffiths, Rt. Hon. James (Llanelly)
Mikardo, Ian


Allen, Scholefield (Crewe)
Hale, Leslie
Mitchison, G. R.


Awbery, S. S.
Hall, Rt. Hn. Glenvil (Colne Valley)
Moody, A. S,


Bacon, Miss Alice
Hamilton, W. W.
Morris, Percy (Swansea, W.)


Baird, J.
Hastings, S.
Moyle, A.


Bellenger, Rt. Hon. F. J.
Hayman, F. H.
Mulley, F. W.


Benn, Hn. Wedgwood (Bristol, S.E.)
Healey, Denis
Noel-Baker, Rt. Hon. P. (Derby, S.)


Benson, G.
Henderson, Rt. Hn. A, (Rwly Regis)
O'Brien, Sir Thomas


Beswick, Frank
Hobson, C. R. (Keighley)
Oliver, G. H.


Blackburn, F.
Holmes, Horace
Oram, A. E.


Blenkinsop, A.
Houghton, Douglas
Orbach, M.


Blyton, W. R.
Howell, Charles (Perry Barr)
Oswald, T.


Boardman, H.
Hughes, Emrys (S. Ayrshire)
Padley, W. E.


Bottomley, Rt. Hon. A. G.
Hughes, Hector (Aberdeen, N.)
Palmer, A. M. F.


Bowden, H. W. (Leicester, S.W.)
Hunter, A, E.
Pannell, Charles (Leeds, W.)


Bowles, F. G.
Hynd, H. (Accrington)
Pargiter, G. A.


Boyd, T. C.
Hynd, J. B. (Attercliffe)
Parker, J.


Brockway, A. F.
Irving, Sydney (Dartford)
Parkin, B. T.


Brown, Rt. Hon. George (Belper)
Janner, B.
Pearson, A.


Brown, Thomas (Ince)
Jay, Rt. Hon. D. P. T.
Peart, T. F.


Burton, Miss F. E.
Jeger, George (Goole)
Pentland, N.


Champion, A. J.
Jeger, Mrs. Lena (Holbn &amp; St. Pncs. S.)
Popplewell, E.


Chapman, W. D.
Jenkins, Roy (Stechford)
Prentice, R. E.


Chetwynd, G. R.
Johnson, James (Rugby)
Price, J.T. (Westhoughton)


Clunie, J.
Jones, Rt. Hon. A. Creech (Wakefield)
Price, Philips (Gloucestershire, W.)


Coldrick, W.
Jones, David (The Hartlepools)
Probert, A. R.


Collick, P. H. (Birkenhead)
Jones, J. Idwal (Wrexham)
Proctor, W. T.


Collins, V. J. (Shoreditch &amp; Finsbury)
Jones, T. W. (Merioneth)
Pryde, D. J.


Corbet, Mrs. Freda
Kenyon, C.
Randall, H. E.


Craddock, George (Bradford, S.)
Key, Rt. Hon. C. W.
Redhead, E. C.


Cronin, J. D.
Lawson, G. M.
Rhodes, H.


Crossman, R. H. S.
Ledger, R, J,
Rogers, George (Kensington, N.)


Davies, Harold (Leek)
Lee, Frederick (Newton)
Ross, William


Deer, G.
Lee, Miss Jennie (Cannock)
Royle, C.


Delargy, H. J.
Lewis, Arthur
Short, E. W.


Dodds, N. N.
Lindgren, G. S.
Skeffington, A. M.


Edelman, M.
Logan, D. G.
Slater, Mrs. H. (Stoke, N.)


Edwards, Rt. Hon. John (Brighouse)

Sorensen, R. W.


Evans, Albert (Islington, S. W.)
MacColl, J. E.
Soskice, Rt. Hon. Sir Frank


Fienburgh, W.
McInnes, J.
Sparks, J. A.


Fletcher, Eric
McKay, John (Wallsend)
Stewart, Michael (Fulham)


Gaitskell, Rt. Hon. H. T. N.
MacMillan, M. K. (Western Isles)
Stonehouse, John


Gibson, C. W.
MacPherson, Malcolm (Stirling)
Stones, W. (Consett)


Gooch, E. G.
Mahon, Simon
Strachey, Rt. Hon. J.


Gordon Walker, Rt. Hon. P. C.
Mallalieu, E. L. (Brigg)
Taylor, John (West Lothian)


Greenwood, Anthony
Mann, Mrs. Jean
Thomson, George (Dundee, E.)


Grey, C. F.
Marquand, Rt. Hon. H, A.
Thornton, E.







Tomney, F.
Wilcock, Croup Capt. C. A. B.
Woof, R. E.


Ungoed-Thomas, Sir Lyn
Williams, Rev, Llywelyn (Ab'tillery)
Yates, V. (Ladywood)


Warbey, W. N.
Williams, Ronald (Wigan)
Younger, Rt. Hon. K.


West, D. G.
Williams, Rt. Hon. (Don Valley)



Wheeldon, W. E.
Williams, W. R. (Openshaw)
TELLERS FOR THE NOES:


White, Mrs. Eirene (E. Flint)
Wilson, Rt. Hon. Harold (Huyton)
Mr. Simmons and Mr. Wilkins.


White, Henry (Derbyshire, N. E.)
Winterbottom, Richard

Clause ordered to stand part of the Bill.

Clause 29.—(TRANSFER OF PART OF TRADE TO CORPORATION OWNED BY TRANS FERORS.)

Mr. Powell: I beg to move, in page 22, line 46, after "holds", to insert:
either directly or through a company or companies, or partly directly and partly through a company or companies".

The Deputy-Chairman (Sir Gordon Touche): I think it would be convenient to discuss with this Amendment the remaining other Amendments to the Clause with the exception of the Amendment in page 23, line 28, and that in page 23, line 44.

Mr. Powell: This Clause deals with the technical machinery of the process that we have become accustomed to describe in these debates as "hiving off". It deals with it in the case where the company hived off is to be virtually a fully owned subsidiary of the parent company. As subsection (1) is drafted, however, provision is not made for the case where it might be desired, instead of hiving off the trading company directly, to set up a holding company subordinate to which there would be two or more overseas trade corporations.
The Amendment covers the case where the trading companies formed by hiving off will be the fully owned subsidiaries, whether directly or partly directly or indirectly or partly indirectly, of the principal company. There is no practical difference, but it enables a structure to be set up embodying a holding company, thus making possible the switch of resources between Overseas Trade Corporations through a parent holding Overseas trade corporation

Mr. Mitchison: The Financial Secretary keeps talking about these obscene litters as overseas trade corporations. I cannot see why there should be so many special provisions for doing things indirectly through a series of holding companies and the like. We were told earlier in the discussion that this was a first venture, and whenever we come to anything about the structure of companies the Government appear ready

to involve themselves in a mass of complications, and in spite of it to omit some of the more obvious points about subsidiaries, to one of which I had occasion to call the Financial Secretary's attention a short time ago. But complexity as such has no terrors for him. On the other hand, when it is a question of putting up a smoke-screen about some fictitious prices, only the simplest machinery is used, as being, I suppose, easier for the foreigners concerned in G.A.T.T. to understand and easier at the same time for those who are to be engaged in these transactions to no good purpose to find their way through.

I do not see why it is necessary to have a provision of this sort and why the advantages of the following subsections of the Clause should be extended beyond what is at the moment obvious and beyond what is necessary to give a fair trial to a new set-up in this matter. I cannot help feeling that the more O.T.Cs., parents, grandparents, uncles, aunts and what-nots of an O.T.C. that the Financial Secretary thinks about, the more pleasure it no doubt gives him, but the more complicated he makes the net and the easier to find holes in it. T therefore somewhat mistrust this Amendment.

Frankly, all of us, including the Board of Inland Revenue, have so little idea of how the whole of this Part will work and how many means and what means will be found by those who wish to do so of getting the advantages without incurring the conditions that I do not feel able to ask my right hon. and hon. Friends to divide on a small point of this sort, but I am bound to say that I do not see the need of the Amendment.

Mr. Ram Arbuthnot: I rise for a moment to say "Thank you" to my right hon. Friend and to the Financial Secretary for having accepted in substance through this Amendment the purport of the Amendment which my hon. Friends and I have on the Order Paper. We are extremely grateful, and we feel that through this Amendment my right hon. Friend has righted what might


have been a wrong to people who came in this category.

Amendment agreed to.

Further Amendments made: In page 23, line 2, at end insert:
or
(b) the person carrying on a trade is a company and, as part of a scheme of reconstruction, part of the trade is transferred to an Overseas Trade Corporation and, as part of that scheme, a third company comes to hold either directly or through a company or companies, or partly directly and partly through a company or companies, not less than ninety-five per cent. of the shares in the first-mentioned company and in the Overseas Trade Corporation.

In line 28, leave out "or are".

In line 44, after "of", insert "the part of".

In page 24, leave out lines 15 to 17 and insert:
(5) In determining for the purposes of this section whether a person holds not less than ninety-five per cent. of the shares in a company, the provisions of Part I of the Fourth Schedule to the Finance Act. 1938, shall apply, taking references to ordinary share capital as including references to other kinds of share capital, and, where the share capital consists of more than one class of share, this section shall apply only if that person.—[Mr. Powell.]

Motion made, and Question proposed, That the Clause, as amended, stand part of the Bill.

10.45 p.m.

Mr. Mitchison: I regard this sort of Clause as capable of classification in various ways. It may be understandable, it may be incomprehensible, it may be understandable with difficulty but capable of only one meaning, and it may be understandable with difficulty and capable of a rich variety of meanings. I am inclined to think with some hesitation that this Clause comes into the fourth category, probably understandable with difficulty but capable of a rich variety of meanings.
The same applies with increasing force to the additions we have just made. I cannot view with any interest or approval in a scheme of this kind the supposed necessity for complications of this sort. If this is to be a workable scheme and workable without the prospect of comprehensive evasion, it ought to be possible to make it a great deal more simple than the Clause makes it in these matters.
When we do get to the tolerably clear and easy provisions they are demonstrably unworkable, not only from their

nature but from the report we have had on them from the Board of Inland Revenue. This kind of Clause and the further complications which the Chancellor's own Amendments have made at this stage simply make me think that this is too complicated to work properly, but not by any means too complicated for people to get round if they want.

Question put and agreed to.

Clause, as amended, ordered to stand part of the Bill.

Clause 30 ordered to stand part of the Bill.

Clause 31.—(POWER TO MAKE REGULATIONS.)

Sir P. Spens: I beg to move, in page 25, to leave out lines 43 and 44.
The Clause gives the Commissioners of Inland Revenue powers by Statutory Instrument to make regulations to deal with this part of the Bill. The second power which is given to them is the power to extend the time within which assessments may be made. I am moving the Amendment because, whatever other powers the Commissioners have, the time for making assessments ought to remain the ordinary statutory time. It is true that the Government have put down an Amendment which will enable them to do it only with the consent of the House of Commons, but all the same on previous occasions we have resisted the power of the Board of Inland Revenue to extend the time for assessments. I strongly take the view that if the statutory period is not sufficient, then the fault is that of the Commissioners and nobody else.

Mr. Mitchison: I hope that the Government will not be so weak-kneed as to accept the Amendment. We have already passed a Clause, quite unprecedented, giving the same Commissioners the power to remit mistakes which did not result in any great benefit for the company. After that quite remarkable innovation in the law of Income Tax, that little reversion in financial matters to the Statutes of Henry VIII, it is remarkable for the right hon. and learned Gentlemen of the Tory Party to boggle at a little thing like this.
The right hon. and learned Gentleman used language which implied that a positive Resolution would be required, but the following Amendment is in the opposite sense, and it gives the House


an opportunity of praying against one of these orders if it thinks it unreasonable. While I view with certain suspicion the grant of unfettered discretion, even upon a comparatively small scale, to the Commissioners—which is what we had a short time ago—this kind of thing leaves me much less bothered, and I can see no particular reason why the Commissioners have not had this power. One never knows what the Government will accept nowadays, but I suppose that it is a fair inference from the next Amendment that they will not accept this one, so perhaps I need not say more.

Mr. Powell: I find that my right hon. and learned Friend's arguments have made more impression upon me than they evidently have upon the hon. and learned Member for Kettering (Mr. Mitchison). It is quite true, as my right hon. and learned Friend said, that the period within which assessments can be made—fixed by Statute—is a very important safeguard of the subject. The idea behind the paragraph which the Amendment seeks to delete was that cases can arise—as has been mentioned earlier—where an overseas trade corporation, in a particular year, might claim to have put itself out of court as an overseas trade corporation where that was an advantage to it, and that claim might well disclose the fact that throughout the whole of the period in which it had been treated as an overseas trade corporation—which might have been for more than six years—it had been enjoying that status without any right to it.
I hope that the provisions which my right hon. Friend proposes to introduce to prevent overseas trade corporations from disqualifying themselves at will in order to gain a tax advantage, however, will be sufficient to meet the point in mind, and I therefore recommend the Committee to accept the view that paragraph (b) is unnecessary and should fall away.

Amendment agreed to.

Mr. Powell: I beg to move, in page 26, line 11, at the end to add:
(3) A statutory instrument containing regulations made under this section shall be subject to annulment in pursuance of a resolution of the House of Commons.
The matters which, by subsection (1), the Commissioners are to be given the power to regulate by Statutory Instru

ment, will certainly include matters which ought not to be settled by them without the power of the House to negative them. The Amendment therefore makes Regulations made under subsection (1) subject to negative Resolution in the House.

Amendment agreed to.

Motion made, and Question proposed, That the Clause, as amended, stand part of the Bill.

Mr. Mitchison: The wisdom of what the Government have done by accepting the first of the two Amendments to the Clause will depend entirely upon the efficacy of the Amendments they propose to make, which will be to the effect of preventing people using the qualifications in the Clause to come in and out of the status of overseas trade corporations—for those were the Amendments to which the Financial Secretary referred. Those Amendments, as he told us earlier, will give the Commissioners power to investigate the intentions of the companies concerned, which means, in fact, the intentions of the directors of those companies. It seems to me a very remarkable view of the value of individual liberty to object to a time of assessment—as was the objection in this case—and, at the same time, to accept the principle and the practice that the Commissioners are going to inquire into intentions in a matter of this sort. I should have thought that it was not advisable to have it depend entirely on matters of intention, and that to omit what has been omitted today simply on the strength of that will prove a serious mistake.
As with so much of this part of the Bill, we get the same thing. Late at night the Government themselves drill an even larger hole than already exists in the sieve which the scheme contemplates. It happens regularly every night. If we went on for a few nights more, it would simply mean that there would be a few more holes in the sieve. The Government then cheerfully say "It will come out all right in the end." I dare say it will, but for whom? Whether it will be for the Revenue or for some of the Government's friends in the City of London, I do not know.

Question put and agreed to.

Clause, as amended, ordered to stand part of the Bill.

Clause 32.—(DEFINITION OF TRADING INCOME AND INVESTMENT INCOME.)

Mr. Powell: I beg to move, in page 26, line 33, to leave out subsections (3) and (4), and to add:
(3) Where the Overseas Trade Corporation receives from another company which is also an Overseas Trade Corporation a dividend on shares in that other Overseas Trade Corporation or a grant or loan in a case where under paragraph 1 or paragraph 2 of the Sixth Schedule to this Act the recipient is to be deemed for the purposes of Income Tax Acts to have received a payment equal to so much of the grant or loan as is under the provisions of the Fifth Schedule to this Act to be regarded as paid out of exempt trading income, and—
(a) either Overseas Trade Corporation is a subsidiary company of the other Overseas Trade Corporation, or
(b) both Corporations are subsidiary companies of the same principal company which is also an Overseas Trade Corporation, the dividend, grant or loan shall, so far as it is to be regarded as paid out of exempt trading income, constitute trading income of the recipient.

The Deputy-Chairman (Sir Gordon Touche): It will probably be convenient to discuss at the same time the Amendment in the name of the hon. Member for Dover (Mr. Arbuthnot), in page 26, line 33, to leave out subsections (3) and (4), and to add:
(3) Where the Overseas Trade Corporation is a principal company and one or more subsidiaries of the Corporation are themselves Overseas Trade Corporations, any dividend on shares in any one of those subsidiaries paid either to the principal company or to any one of such subsidiaries, and any grant or loan which under paragraph 1 or paragraph 2 of the Sixth Schedule to this Act is to be deemed to represent a dividend paid to or by the principal company or to or by any one of such subsidiaries, shall so far it is to be regarded under the provisions of the Fifth Schedule to this Act as paid out of exempt trading income, constitute trading income of the recipient.

Mr. Powell: The present subsections (3) and (4) have the effect respectively that where a subsidiary O.T.C. pays a dividend to a principal O.T.C. or where a principal O.T.C. makes a grant or loan to a subsidiary O.T.C., the resources received are treated as the trading income of the recipient and, therefore, attract the exemption conferred by O.T.C. status.
However, that leaves a third, and important, case out of account, namely where the payment or transfer occurs not via the principal company but directly

between subsidiaries. There is, clearly, no reason why that direct transfer should be penalised when the indirect transfer is to be permitted without going through the hoop of United Kingdom Income Tax. That result can be achieved and the wording can be simplified by the substitution of the new subsection.

Mr. Mitchison: This is another of the experiments in the curious family of O.T.C.s so dear to the heart of the Financial Secretary. This one sounds a bit more sensible than the last lot. The complication of a scheme of this kind is the best comment on its practicability and the best comment on the possibilities of evasion that it necessarily prevents. If the Financial Secretary at this stage has been able to think up all these possibilities, how many more possibilities will he have been able to think up next year?

Mr. Arbuthnot: Once again, I thank my right hon. Friend for the way in which he has met the case we have sought to meet in our Amendments.

Amendment agreed to.

Motion made, and Question proposed, That the Clause, as amended, stand part of the Bill.

11.0 p.m.

Mr. du Cann: I wish to ask the Financial Secretary a question relating to subsection (2, b). I should be grateful if he could give the reason for the inclusion of the words "without security".
I appreciate that they may be written so as to exclude from the provisions of the Clause the benefits which arise therefrom, but when we were discussing Clause 21 I pointed out that it was the usual practice of certain Australian companies and agency companies to lend money in certain cases without security. It would seem on the face of it—thinking of those companies and of those companies alone, although I appreciate that other considerations may be involved—a little illogical and unreasonable that what has been ordinary commercial practice should involve such companies in some difficulties under this Clause. If my hon. Friend could explain. I should be most appreciative.

Mr. Powell: As my hon. Friend knows, the question here is what falls within the ambit of trading and what within the ambit of investment. Any income


arising from the lending of money would be classified as investment income, and the purpose of these words is merely to make it clear that the income arising from the lending of money is investment income, even when the money is lent without security.

Question put and agreed to.

Clause, as amended, ordered to stand part of the Bill.

Clause 33.—(INTERPRETATION OF PART IV.)

Mr. Mitchison: I beg to move, in page 27, line 17, at the end, to insert:
recognised market" means a market declared by an order of the Board of Trade for the time being in force to be a recognised market for the purposes of this Part of this Act.

The Deputy-Chairman: I think that it would be convenient if this Amendment were discussed with that in page 27, line 22, at the end to insert:
(2) No order shall be made by the Board of Trade under the last foregoing subsection except with the consent of the Treasury and an order so made shall be in the form of a statutory instrument and subject to annulment by a resolution of the Commons House of Parliament

Mr. Mitchison: Yes, Sir Gordon.
These two Amendments are designed, first of all, to give some practical sense to the phrase "recognised market" by giving the Board of Trade, with the consent of the Treasury, power to declare by Order what a recognised market is. If the Committee wants a precedent for that, there is a very rough one in the "recognised stock exchange" defined in the same sort of way in the Prevention of Frauds Act, though, naturally enough, there is no Treasury consent required in that case. The second effect of the two Amendments is that when the Board does declare that, it has to do it in the form of a Statutory Order, and that Order shall be subject to annulment.
The phrase "recognised market" occurs in Clause 21 (1), and it is highly important in connection with the sale of commodities—either, as the Bill originally stood, commodities produced abroad by an overseas trade corporation or, as the Bill now stands, commodities of the kind produced abroad by an overseas trade corporation.
The object of the reference to a "recognised market" is to limit the sales

here to sales through agents or brokers of a market of that kind in this country, and not to allow an overseas trade corporation to go beyond that and have what one may call some particular selling or some more elaborate selling. I would say at once that I can think of quite a number of instances where there obviously is a recognised market, but I come to all sorts of cases where it is much more doubtful whether there is or is not a recognised market.
The very large question, of course, is what does "recognised" mean. Does it mean recognised in the trade in question? Does it mean recognised by the general public? Does it mean recognised in some form or another by the tax authorities? If it has the latter meaning, then I cannot see how they have had to consider the question before. Therefore I rather reject that one.
What is the real object of having a "recognised market" of this kind? It is, as I understand it, to bring the sales into the category of a type of sale made in tolerably large numbers, in tolerably similar conditions, made, perhaps, according to the rules of some trade association, made in some tolerably well-known place, and not up and down the country—things of that sort are intended. There are all sorts of difficulties. Take the last point I mentioned. It is true that if one is looking for a particular centre for sales, say, of cotton or tea, one can find it, but if one looked for a particular centre for timber, I think it would be a great deal harder to find it.
Is there, or is there not, in those circumstances a "recognised market," both for tea and cotton on the one hand, and for timber on the other? Then again, what is the sphere of a "recognised market"? Is it a "recognised market" if it is controlled by one or two concerns and the price is more or less dictated by them—altered from time to time, no doubt, in relation to the demand—but still very much a one-man matter? Take a metal like copper: what is the position there? The right hon. Gentleman, the Chancellor of the Exchequer, has forgotten more about this than I have ever known, because he has recently been President of the Board of Trade, but I wonder if he would tell us whether or not there is a "recognised market" in copper, and if it is a sort of open market of the kind he wishes to recognise here, or if it is a


matter that is largely regulated by a few large copper producers.
What about diamonds? I am not in the habit of buying them myself, because I cannot afford to do so, but the right hon. Gentleman is. [HON. MEMBERS: "Oh!".] If it is diamonds that we are considering, is there or is there not a "recognised market"? I have always understood that one goes round to a body called the diamond corporation, or something like that, and that it sells one diamonds. On the other hand, I am told that there are a lot of dealers. I always see a delightful picture of men in bowler hats, walking about in Hatton Garden with little bags carrying diamonds worth millions of pounds. I have never met any of them, and have not been to Hatton Garden very often, and then never for the purpose of business but merely because it happened to be between one place and another, but I should like to know whether there is a "recognised market" in diamonds.
These overseas trade corporations may have to deal with all kinds of other things, and the picture is altogether fascinating. But this is the distinction that will make a difference to very many of these bodies—whether they do or do not get the advantages supposed to be offered them under this part of the Bill. Therefore, it is exceedingly important and, indeed, a vital decision. More than that, it is up to them to do it right, because if they do not, we will have the awful possibility, disclosed to us a short time ago, that they will discover that when they were dealing in toothpicks, or whatever it was, in what they thought was a recognised market, they had in fact been dealing in toothpicks in an unrecognised market, and for that reason for six years past they had been getting an advantage to which they were not entitled. It is not satisfactory that so much should turn on such a vague phrase, and I have come to the conclusion that the Government themselves do not know what they mean by it.
I suggest that if there is to be any other ground of decision than the convenience of particular people who choose to say that something is a recognised market, the Board finding no particular

reason to deny it, the matter ought not to be decided so much by definition in the Bill—I recognise that one cannot properly do that since it is something so changeable and various—as by a power in the Board of Trade to decide it. After all, the Board of Trade is the body for this purpose, to say what is or what is not a recognised market.
I earnestly hope that the right hon. Gentleman the Chancellor will accept the Amendment, and not view with too much horror and suspicion the entry of his old friend the Board of Trade into a Finance Bill. There is, after all, something so august about the Treasury that it really knows nothing, except everything; for that reason, it is better to have the more specialised knowledge of another Department brought to bear upon the matter.

Mr. Birch: I am grateful to the hon. and learned Gentleman for moving the Amendment. He has made a very reasonable point. I think that there should be some closer definition of what the term means. We do not want to accept his actual form of words, but we should like to consider the matter further, before Report. It clearly is the duty of the Board of Trade to draw up the list, in consultation, of course, with the Treasury. Whether the device of a Statutory Instrument is rather too ponderous a one, I do not know, but if the hon. and learned Gentleman would be good enough to withdraw the Amendment, we will consider the matter and raise it again on Report.

Mr. H. Wilson: We are all grateful to the right hon. Gentleman the Economic Secretary for what he has just said. This is a very glaring, if minor, gap in the Bill. My hon. and learned Friend has put the arguments, and I need not repeat them. It is very difficult to know in certain marginal cases whether there is a recognised market or not. We know that some markets are simply the result of a number of chaps getting together over the telephone, buying and selling. I imagine that, in most cases, those would be excluded from the list the Government have in mind.
What we are particularly anxious to ensure, so far as I can see from the Bill, is that there should be a definite and


more or less predetermined price, established by quotations from the market and Press, and all the rest of it, so that there is no possibility of an overseas corporation selling to any associated company at a price which might or might not be a result of the famous "arms' length" business. My hon. and learned Friend did mention one or two special examples. I hope that when we come to the Report stage, the Government spokesman will, in addition to producing an Amendment, give some information on the kind of markets which will be included and those which will be excluded. Copper was mentioned. There is a copper market, of course, and we know that prices are fixed from time to time, a few weeks ahead, by the two principal Rhodesian companies.
Further, I should be glad if the right hon. Gentleman the Chancellor and his hon. and right hon. Friends would look at the expression "recognised market" in relation to bulk buying. If I am right in assuming that the reason for this is to ensure that the price for the goods is determined quite outside the control of any parent companies at home. it being an ascertainable and independent fixed price, there is, of course, also the matter of bulk buying to be considered. I do not want, certainly at this time of night, to get into an argument about any possible resumption of bulk buying in certain of these commodities, though before very long, I think, the Chancellor will find that he really cannot encourage Commonwealth trade, as I am sure he would like to do, except by a resumption of bulk buying. But, in case that should happen, it should be made quite clear that the term "recognised market" would include a Government or other form of buying agency.
There is, as far as I know, one commodity which is still bulk bought by the Government in this country, namely jute. Does the jute control constitute a recognised market for the purpose of this Clause? I think that the Government would have to agree that the existence of a jute control fulfils the conditions perfectly. I should be glad if the Chancellor would look at this point and, if necessary, make certain that "recognised market" includes an independent bulk buying authority.
We welcome the fact that the Chancellor has made this small concession, and if it is the wish of the Committee, we shall be glad to withdraw the Amendment.

Mr. Mitchison: May I thank the Economic Secretary, and beg to ask leave to withdraw the Amendment?

Amendment, by leave, withdrawn.

11.15 p.m.

Mr. Stevens: I beg to move, in page 27, line 25, to leave out "more than one half" and to insert "one half or more."
This proposal is not as trivial as it might appear. A subsidiary company is defined in as one of which more than one half of its ordinary share capital is owned by another company. It is the fact that in certain cases local pressures or regulations make it impossible for a company to obtain 51 per cent. or more of its share capital. I think that the words should be "one half or more." It is true that this might mean that a company might be a subsidiary of two parent companies at one and the same time. I do not think that would be of any particular significance in this context, because then any dividends received from the subsidiary company would be trading income in the pockets of both parent companies.
I hope that the Chancellor will be able to accept the Amendment.

Mr. Mitchison: I hesitate to say that I hope the Government will not accept the Amendment, because when I do, they always accept it. Perhaps it would be better not to say anything, but my feelings are sufficiently strong to allow valour on this occasion to outrun prudence.
I earnestly hope that the Government will not accept the Amendment. When the Committee discussed Clause 32, we agreed that some of the advantages there depended on a subsidiary company really and truly being a subsidiary company, and that it might lead to very dangerous and difficult consequences if one could have a company—to take the instance I gave at the time—which was owned by three companies together.
The whole framework of this scheme is so tied up with a subsidiary having its natural mien—that of a company owned


and controlled by another company—that to open this particular door would be much too dangerous. I hope that the Government will not knock a second large hole in the sieve at this late hour of the night and in this particularly dangerous way.

Mr. Powell: I am sure that my hon. Friend the Member for Langstone (Mr. Stevens) appreciates the importance of the definition of a subsidiary company. It is important for two reasons; for the reason mentioned by the hon. and learned Member for Kettering (Mr. Mitchison), that it is essential that there should be real control between the principal and the subsidiary companies, and also because it is essential to ensure that the holding of the principal company in the subsidiary is for trading, and not merely for investment purposes. The definition is, therefore, one which we have to scrutinise very carefully. My hon. Friend has indicated that there may be cases where local requirements would not permit a 51 per cent. holding while they would permit a 50 per cent. holding, though in the circumstances that would give the same degree of practical control and would still be a trading holding as much as if it were 51 per cent.
My right hon. Friend would like to take the opportunity of the interval between this stage and Report for examining in detail cases of that kind with a view to ascertaining how they might best be met, and I hope my hon. Friend will feel, in view of this assurance, that he would be justified at this stage in withdrawing his Amendment.

Mr. Mitchison: If that is going to happen, it just shows the result of allowing valour to outrun discretion. I am sure the Financial Secretary would not have said what he has said if I had not suggested that he should not say it. Now that we are to have that arrangement, we shall have to wait and see what emerges, but I would ask the Financial Secretary at the same time to consider the possibility, for the reason that he himself gave, that in the majority of cases there ought to be more and not less than a 51 per cent. control, and to consider also whether the natural meaning of a subsidiary is not something rather more than bare control when what is required to do is to

differentiate between investment and trading.
I do not expect the hon. Gentleman to do anything about it. I am just asking him to think a little more. We seriously recognise that he has done a lot of thinking about this Bill; a little more thinking would be very good for him.

Mr. Stevens: On behalf of my hon. Friends and myself, I must express our very deep sense of gratitude to the hon. and learned Member for Kettering (Mr. Mitchison) for his very helpful interjection which has had such happy results with my hon. Friend the Financial Secretary, in view of whose assurance I most decidedly beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause ordered to stand part of the Bill.

Clause 34 ordered to stand part of the Bill.

To report Progress and ask leave to sit again.—[Mr. P. Thorneycroft.]

Committee report Progress: to sit again Tomorrow.

SUPERANNUATION [MONEY]

Resolution reported,
That, for the purposes of any Act of the present Session to make further provision as to gratuities payable in respect of persons employed in the civil service of the State otherwise than in an established capacity and as to the application of the Superannuation Acts to persons entering the civil service of the State after having been in other employment, it is expedient to authorise—
1 Any increase in the sums payable under any enactment out of moneys provided by Parliament which is attributable—
(a) to any amendment of section thirty-nine of the Superannuation Act, 1949, as respects gratuities payable in the case of persons dying, retiring or removed from their employment on or after the fifteenth day of May, nineteen hundred and fifty-seven,
(b) to amendments of the Superannuation Acts in relation to persons who, after having been employed by a body or organisation the income of which was wholly or partly derived from moneys provided by Parliament have, whether before or after the passing of the said Act, been taken into the civil service of the State where, in the opinion of the Treasury, their employment by that body or organisation was of the same nature and for the same purpose as their employment in the service of the State,


(c) to any provision authorising the reckoning of service in a temporary capacity with the Imperial War Graves Commission before the thirtieth day of September, nineteen hundred and thirty-four, as being for the purposes of the Superannuation Acts employment in an unestablished capacity within the meaning of section three of the Superannuation Act, 1935.

2. Any payments into the Exchequer.

Resolution agreed to.

Orders of the Day — SUPERANNUATION BILL

Considered in Committee.

[Sir GORDON TOUCHE in the Chair]

Clause 1.—(GRATUITIES FOR PERSONS SERVING IN UNESTABLISHED OR PART -TIME CAPACITIES IN THE CIVIL SERVICE.)

Motion made, and Question proposed. That the Clause stand part of the Bill.

11.25 p.m.

Mr. Douglas Houghton: I wish to refer to subsection (3) of this Clause and once more to express my regret that the Chancellor of the Exchequer has not been able to agree to an earlier date than 15th May, 1957, for this new scale of gratuities to temporary staffs of the Civil Service which was recommended by the Priestley Commission on the Civil Service in 1955.
The right hon. Gentleman knows that an understanding has been reached on the Civil Service National Whitley Council which would preclude me, as Chairman of the Staff Side of the Whitley Council, from moving any Amendment to the Bill in Committee without a breach of that understanding. That, however, would not have precluded any of my hon. Friends doing so had they wished, but we have tried to keep to that understanding and I am not doing any more than expressing regret that the right hon. Gentleman was not able to do something more generous in this matter of the effective date.
Since the Bill has been before the House, I have received many letters from ex-temporary civil servants who have been discharged in recent months and who are bitterly disappointed that they are not brought within the scope of the Bill. They naturally looked for

ward, when they saw the recommendations of the Royal Commission in the autumn of 1955, to an early implementation of those recommendations. They understood, not with complete accuracy, that all the recommendations of the Priestley Commission were in one package and were being adopted comprehensively and as a whole. But those of us who were close to these negotiations understood the distinction, which might he merely technical or real, between those recommendations of the Commission which it was within the power of the Treasury to apply without legislation and those which required this Bill to give effect to them.
There is no more to be said. We either do a thing or we do not in a matter of this kind. There is no close argument to be used as to why there should be an earlier effective date than a later one It just is the fact that the recommendations were made when they were, and it is regrettable that they were not given earlier effect. I acknowledge, however—I want to be quite fair to the right hon. Gentleman the Chancellor; we have full confidence in his fairness in these matters—that the Bill has come somewhat earlier than his predecessor gave us to understand might be the case, and we are grateful that he has found time to bring the Bill forward this Session and to ask the House to deal with it.
I think that that is a fair acknowledgment of the fact that we have the Bill before us tonight. To that extent, probably, the recommendations of the Commission are beginning earlier than they would have done if the Bill had been introduced later, and certainly earlier, probably, than if the Bill had been introduced in the next Session. I know the wretched administrative difficulties that dog one in all these matters, whether in reforms or otherwise.
I know the difficulty of going back and finding people who have left and of going into their entitlement to these gratuities after they have departed, but a measure of retrospection to the date of the Commission's actual Report or thereabouts would not have provided half the difficulty which we have had in trying to deal fairly with people who have gone out of the Civil Service in the past. I do not wish to detain the Committee a moment longer. I have put


this on the record. We shall certainly co-operate in completing the passage of the Bill through the House at the earliest possible moment.

Question put and agreed to.

Clause ordered to stand part of the Bill.

Clauses 2 to 5 ordered to stand part of the Bill.

Bill reported, without Amendment; read the Third time and passed.

ADJOURNMENT

Resolved, That this House do now adjourn.—[Mr. Hughes-Young.]

Adjourned accordingly at twenty-nine minutes to Twelve o'clock.